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Global Asset Allocation Insights - July 2025

Our Multi Asset team's views on which asset classes and markets are presenting the greatest opportunities and risks.

What has changed?	What has stayed the same?	What are we watching?
Tariff risks have moderated: Trade deal developments, especially between China and the US, have curtailed extreme tail risks, resulting in a more range-bound outlook. While uncertainty remains (and focus shifts from China to Europe), risks have shifted from a potential sharp correction to a slower-moving drag on consumer confidence and business sentiment.	The Fed remains on pause: FOMC members weigh the impact of more stagflationary policies from tariffs to the growth slowdown that already looks underway in the US. US exceptionalism still in question: Policymaking in the US continues to drive uncertainty, potentially leading to the tide coming out for US assets.	US policy: We continue to watch announcements from the US, as trade deals determine final tariffs, and Republicans mark-up legislation towards President Donald Trump’s tax bill. Hard data: We are watching hard data for signs of meaningful economic slowdown. Geopolitics and fiscal policy: As geopolitical uncertainty mounts, we are watching fiscal policy, particularly defence spending in Europe.

What has changed?

What has stayed the same?

What are we watching?

Tariff risks have moderated: Trade deal developments, especially between China and the US, have curtailed extreme tail risks, resulting in a more range-bound outlook. While uncertainty remains (and focus shifts from China to Europe), risks have shifted from a potential sharp correction to a slower-moving drag on consumer confidence and business sentiment.

The Fed remains on pause: FOMC members weigh the impact of more stagflationary policies from tariffs to the growth slowdown that already looks underway in the US.
US exceptionalism still in question: Policymaking in the US continues to drive uncertainty, potentially leading to the tide coming out for US assets.

US policy: We continue to watch announcements from the US, as trade deals determine final tariffs, and Republicans mark-up legislation towards President Donald Trump’s tax bill.
Hard data: We are watching hard data for signs of meaningful economic slowdown.
Geopolitics and fiscal policy: As geopolitical uncertainty mounts, we are watching fiscal policy, particularly defence spending in Europe.

Cycle gauges

Big picture themes

Tariff risks have moderated but are still present

Developments on tariffs have reduced extreme left- and right-tail risks. Volatility has eased, but the swift rebound in risk assets has rapidly priced in an improved outlook, lifting valuations again.

Reduced recession risk

The US-China trade truce has reduced the chance of some of the more extreme recessionary and stagflationary scenarios playing out in the US.

Uneven inflation moderation

Inflation is easing back down from elevated levels, although there is regional dispersion. Effective US tariff rates are still significantly higher than at the end of 2024.

No single source of safety

A changing correlation backdrop in recent months continues to raise questions about effective diversification. Navigating markets will require a broader toolkit and more flexible approach.

Resilient global growth so far, but a weak industrial cycle

Our Fidelity Leading Indicator has moved into the ‘above average and improving’ quadrant, although this largely reflects front-loading ahead of tariffs, which will likely reverse.

Fiscal stimulus in Europe

Fiscal policy will be critical to the macroeconomic picture over the coming months, with countries like Germany making moves against a changing political backdrop.

TAA views summary

		+	Snapshot of views
Equities	Equities		Maintaining neutral equities. Downside risk has eased but retracement has pushed risk assets back to rich valuations.
	US		We are staying neutral on the US. Policy uncertainty remains elevated, and fiscal sustainability keeps yields high. As a result, US exceptionalism remains in question.
	Europe	<-	Moving Europe back to neutral. Valuations are converging after a very strong first half of the year for the region. The strengthening euro is starting to be a headwind for large cap equity earnings, while the unresolved trade conflicts with the US is also a concern.
	UK		Earnings revisions remain uninspiring, but the market remains at a discount and sterling weakness will support multinational large caps.
	Japan		Positive earnings momentum and rising dividend payouts balance out trade policy uncertainty and the chance of a hawkish BOJ surprise.
	Emerging markets		We stay overweight as a result of our higher conviction in China, where we believe recent rallies have been better supported by fundamentals, as well as our positive outlook on India and Korea.
	Asia Pacific ex. Japan		Australia’s weak outlook keeps us cautious and Singapore equities are no longer attractively valued. This is our preferred funding source.

		=	+	Snapshot of views
Credit	Credit			Credit valuations are not the most attractive compared to other asset classes.
	Investment grade			Spreads in IG remain very tight and we prefer the risk-reward of other areas of credit.
	High yield	->		Fundamentals remain robust and all-in-yields still look attractive, especially as rates are coming down. We prefer short-dated HY.
	Emerging market debt		<-	Neutral but within emerging market we prefer local currency as there are many regions with attractive real yields and/or steep curves.

		Snapshot of views
Government bonds	Government bonds	We retain our overweight to government bonds with a preference for EM local currency.
	US Treasuries	USTs look fair value, but deficit worries persist. The Fed is less inclined to cut too soon, and Treasuries have been less effective as hedges in recent weeks.
	Euro core (Bund)	We stay neutral bunds, preferring regions where central banks have more room to cut rates such as Australia / New Zealand.
	UK Gilts	Gilts offer decent value. We don’t believe they should trade at a significant premium without US-style self-induced price risks from tariffs.
	Japanese gov. bonds	JGBs continues to be the funding source with a moderate level of conviction. However on a hedged basis, JGB yields are increasingly interesting and offer attractive carry and roll down.
	EM local currency gov. bonds	There are several markets in EM, especially LatAm, with attractive valuations and high real yields. A weakening dollar also helps.
	Inflation linked bonds (US TIPS)	Linkers are still a decent hedge against a stagflation scenario but are less attractive in light of budget deficit concerns in the US.

		=	Snapshot of views
Cash / currencies	Cash		Neutral cash
	US dollar		USD is expensive and US exceptionalism is fading, with policy uncertainty fuelling de-dollarisation.
	Euro		Overweight euro on account of the big fiscal shift in Germany.
	Japanese yen		The BOJ remains on a policy normalisation path and the yen is attractively valued.
	Sterling	<-	GBP valuation isn’t cheap, positioning is still somewhat elevated and the recent softer data makes it a preferred funding source.
	Emerging markets FX		A weaker dollar and positive flows towards EM equities are positive for EM FX.

Source: Fidelity International, June 2025. Views reflect a typical time horizon of 12–18 months and provide a broad starting point for asset allocation decisions. However, they do not reflect current positions for investment strategies, which will be implemented according to specific objectives and parameters.

Best ideas for investment outcomes

Growth

Chinese, Indian and Korean equities remain attractive in the broader EM complex and stand to benefit from growing investor interest.
Grid upgrade thematic equities benefit from the idiosyncratic return drivers as Europe & the US look to accommodate increased renewable energy sources & demand.
Global multi asset strategies taking a flexible approach, accessing growth opportunities across the capital structure.

Income

Emerging market bonds should benefit from a weaker dollar and offer an attractive entry point given reduced downside and wider spreads.
Quality income equities provide relative defensiveness and stability.

Capital preservation

We are positive on gold as positioning has become less crowded, and on commodities in general as they can hedge against inflation re-accelerating.
Finding resilience in structural growth themes, such as technology, alongside traditional defensives.
Broader toolkit including options used selectively to add downside protection.

Uncorrelated returns

Absolute return strategies, driven by active investment decisions and incorporating idiosyncratic sources of risk – particularly those with a focus on tail risk mitigation.

	– –	–	=	+	++
Equities
US
Europe				<-
UK
Japan
Emerging markets
Asia Pacific ex. Japan

Key views

Remaining neutral on US: While the US remains the highest-quality equity market by ROE and innovation, policy uncertainty and rising Treasury yields are creating headwinds. We hold our neutral view on US markets and question whether US equities warrant a meaningful premium over global peers.
Moving to be neutral Europe: after a very strong first half of the year, valuation has converged somewhat, and the strengthening EUR could start weighing on large cap equity earnings.
Overweight emerging markets: Fundamentals remain supportive with China margins holding up better relative to other markets and earnings results being decent after 3.5 years of disappointment. The recent AI drive is encouraging and improves China’s invest-ability. Also positive on India and Korea on the back of central bank easing and new government’s reforms.

EM opportunities - India

	=	+
Credit
Investment grade
High yield	->
Emerging market debt		<-

Key views

Prefer HY to IG: Whilst there are different opinions in the team on HY and EMD, there is a consensus that IG is broadly unattractive for its tight spreads and long spread duration, although there are some opportunities in short-dated IG. HY has the benefit of shorter spread duration and still resilient fundamentals.
Neutral EMD, prefer local currency: Spreads have tightened, meaning EMD as a whole is less attractive, despite fundamentals still being solid. This remains a good environment to extract carry, but we prefer short-dated high yield.

EM corporate and sovereign HY are relatively cheaper than US IG vs own history

	– –	–	=	+	++
Government bonds
US Treasuries
Euro core (Bund)
UK Gilts
Japanese gov. bonds
EM local currency gov. bonds				<-
Inflation linked bonds (US TIPS)

Key views

Neutral bunds and gilts: prefer to hold rates elsewhere where central banks have more room to cut rates such as Australia / New Zealand.
Long New Zealand govt bond: NZ government bond yields are higher than US and other peers, despite lower growth and inflation. NZ has seen the most aggressive hiking cycle in the G10, and if it follows its 2015 playbook, it will cut far faster than its own forecasts.
Several attractive EM local currency government bonds including Brazil, Peru, Mexico, and South Africa.
JGBs remains the funding source: While the BoJ has more work to do in its hiking journey, on a hedged basis JGB yields are increasingly interesting and offer attractive carry and roll down.

Prefer to hold rates where real yield is high

	– –	–	=	+	++
Cash
US dollar
Euro
Japanese yen
Sterling			<-
Emerging markets FX

Key views

Staying underweight the US dollar: The dollar is expensive, the US runs a twin deficit, with potential de-dollarisation given uncertain policy trajectory.
Retain overweight to the euro and yen: We maintain our overweight to the euro and have started to see benefits from flows returning and increased hedging. We also continue to be overweight Japanese yen, which we believe is attractively valued and could act as a safe haven amid elevated volatility.
Moving to underweight GBP: Sterling’s valuation isn’t cheap, positioning is still somewhat elevated, and the recent softer data makes GBP a preferred funding source.

USD remains expensive despite recent weakness, while JPY is still undervalued compared to historical averages.

Prefer EM assets broadly: We are overweight EM equities, EM FX and EM local currency debt. We believe that the dollar will continue to weaken which should provide a boost for EM assets generally. EM equities should also be better supported by the improving outlook for China, as well as India and Korea. In addition, the diversion of Chinese goods away from the US should help to keep inflation under control in the rest of the world. This is especially true for EMs and should further support EM local currency debt, where there are several very attractively valued opportunities, especially in Latin America.
Long Korea equity: Newly elected President Lee has been strongly advocating for corporate reforms, primarily the revision of the Commercial Code and the moderation of the governance discount. Since the election, KOSPI’s PB ratio has risen to the 1x level, yet valuations remain attractive, trading at a substantial discount compared to other countries. The recovery in memory prices and export data further supports this thesis.

Kospi’s valuation remain attractive both in historical and relative basis even after recent rally.

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Global Asset Allocation Insights - July 2025

Cycle gauges

Big picture themes

Tariff risks have moderated but are still present

Reduced recession risk

Uneven inflation moderation

No single source of safety

Resilient global growth so far, but a weak industrial cycle

Fiscal stimulus in Europe

TAA views summary

Best ideas for investment outcomes

Key views

Key views

Key views

Key views

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