26 September 2025

Global Market Outlook

The equities melt-up

We expect the US economy to achieve a soft landing, supported by Fed rate cuts. This, together with policy easing in most major economies, supports our positive earnings growth outlook. We favour global equities and gold over bonds and cash.

We raise US equities to Overweight and remain Overweight Asia ex-Japan. We expect US equities to be supported by resilient earnings growth and Fed rate cuts, while Asia ex-Japan should benefit from earnings growth and a weak USD.

Overweight EM local currency bonds. Add to gold. We see value in adding non-USD bonds, especially in EMs where rate cuts offer additional support. We add to our gold allocation as diversification demand increases.

Irrational exuberance like it’s 1996 or 2000?

What are the drivers of your soft-landing view?

Are your quant models still positive on risk assets?

Strategy

Investment strategy and key themes

Steve Brice

Global Chief Investment Officer

Manpreet Gill

Chief Investment Officer, AMEE

Raymond Cheng

Chief Investment Officer, North Asia

12m Foundation Overweights:

Global equities, gold
US, Asia ex-Japan equities
Emerging Market (EM) local currency bonds

Opportunistic ideas – Equities

Global Gold Miners^
US Technology sector^
China non-financial high-dividend state-owned entities (SOEs) and Hang Seng Technology index
Europe industrials

Sector Overweights:

US: Tech, comms, healthcare
Europe: Industrials, financials, tech
China: Comm, tech, discretionary

Opportunistic ideas – Bonds

UK Gilts (FX-unhedged)
US Treasury Inflation-Protected Securities (TIPS), US short duration High Yield bonds

The equities melt-up

We expect the Fed cuts to support a soft landing of the US economy. This, together with policy easing in most major economies, supports our positive earnings growth outlook. We favour global equities and gold over bonds and cash.
We raise US equities to Overweight and remain Overweight Asia ex-Japan. We expect US equities to be supported by resilient earnings growth and Fed rate cuts, while Asia ex-Japan should benefit from earnings growth and a weak USD.
Overweight EM local currency bonds. Add to gold. We see value in adding non-USD bonds, especially in EMs where rate cuts offer additional support. We add to our gold allocation as diversification demand increases.

Fed rate cuts to support a soft landing

Major asset class performance in Q3 to date paints a picture of optimism laced with caution. Global equities have risen more than 6% even as global bonds struggled to generate positive returns. Gold, however, has delivered double-digit returns. Overall, our balanced allocation is up over 5%, with Asia ex-Japan equities starting to outperform again.

Thus far, the macro and market outcomes have turned out largely along expected lines as laid out in our H2 Outlook. There has been weakness in US economic growth, most so in the job markets, but the Fed has started to cut interest rates. Policy support, together with slow-but-not-recessionary data, strengthens our base case scenario of a soft landing. A recession remains our main risk scenario, but job markets would have to weaken considerably further in the coming months for this to become a greater concern. We expect the Fed to cut rates twice more (25bps each policy meeting) in 2025 and twice further in 2026, bringing policy rates closer to its own estimate of a more neutral level (3%). The continued reduction in US rates means downward pressure on the USD will likely continue.

Policy support remains a common theme in key non-US markets as well. In India, policymakers simplified (and effectively cut) goods and services tax (GST) rates, helping make fiscal policy more stimulatory. In China, the steady pace of targeted support measures continued.

Fig. 1 Our long-term quantitative model is positive on equities over bonds, despite near-term challenges

Our quantitative stock-bond model; currently OW equities

Fundamentals support equities melt-up

We believe recent macro data and policy efforts support staying Overweight global equities relative to bonds and cash.

A soft landing for the US economy and significant policy support outside the US remain key assumptions behind our expectations for continued corporate earnings growth. Pessimists argue that event risk from a looming potential US government shutdown, elevated equity market valuations, weak seasonality (historically in September-October) and increasingly stretched investor positioning are risks. However, while some short-term volatility or consolidation cannot be ruled out, the still-strong fundamental indicators balance out the negative case, in our view, as indicated by our quantitative stock-bond model, which still favours stocks over bonds.

We hold the view that, in this environment, growth equities will outperform high dividend equities.

The regional trade-offs

Within global equities, Asia ex-Japan remains a preferred region. We are Overweight based on our expectation of a weak USD and continued policy support, especially in the larger economies of China and India. Within Asia, we are Overweight China (with a preference for offshore equities), given growth-supportive policies. We have a core holding for Indian equities and expect recent policy stimulus to help corporate earnings growth to bottom out.

We upgrade US equities to Overweight. The market has witnessed resilient earnings momentum following the last earnings season, led by artificial intelligence-related sectors. This, together with a Fed rate cut supporting our soft-landing view, is why we expect the US to outperform global equities over the next 6-12 months, despite our weak USD view.

We balance these with Underweights in UK and Euro area equities. This is by no means a negative view – indeed we expect both regions can still deliver respectable absolute returns – but the bar to outperform Asia ex-Japan or the US appears more formidable. Indeed, this has been the experience since 2 April: European equities have gained more than 10%, but they have lagged US and Asian peers.

Fig. 2 Gold expected to sustain gains amid central bank reserve diversification demand and a weak USD

Gold price vs. USD index (DXY, inverted)

Adding to Gold allocations

We are adding to our gold allocation. The precious metal has continued to record strong gains since its break above a tight trading range in September. We expect gains to extend, led by a resumption of central bank reserve diversification demand and a weak USD. We expect the gold price to rise to USD 4,100/oz over the next 6-12 months.

Over a shorter horizon, gold also offers an attractive hedge against risks of a rebound in inflation worries, short-term equity volatility or unexpected policy events.

Prefer non-USD bonds

Our forecast for continued USD weakness means we remain Overweight EM local currency bonds. In an environment where downward pressure on the USD persists, we continue to see value in holding a tilt to non-USD bonds. Besides the currency exposure, rate cuts also lend support. As recently witnessed in several EMs, a rising need for policy measures to support growth, relatively muted inflation and reduced downside pressure on currencies in a weak-USD environment mean central banks are likely to continue cutting rates.

We balance this with an Underweight view on US/European High Yield (HY) bonds. While we acknowledge this asset class should remain well supported in our soft-landing scenario, we believe limited scope for further compression in yield premiums over government bonds makes them less attractive relative to equities in a pro-risk scenario.

In our multi-asset income portfolio, we maintain positive views on US Mortgage-Backed Securities (MBS) and subordinated financial bonds. The government bond-like credit quality and yield premium over government bonds are leading the performance of MBS bonds. Meanwhile, subordinated financial bond valuations continue to be expensive relative to history and other major bonds. However, we still see them as a pocket of relative value, given broadly elevated valuations across most types of corporate bonds.

Foundation asset allocation models

The Foundation and Foundation+ models are allocations that you can use as the starting point for building a diversified investment portfolio. The Foundation model showcases a set of allocations focusing on traditional asset classes that are accessible to most investors, while the Foundation+ model includes allocations to private assets that may be accessible to investors in some jurisdictions, but not others.

Fig. 3 Foundation asset allocation for a balanced risk profile

Fig. 4 Foundation+ asset allocation for a balanced risk profile

Fig. 5 Multi-asset income allocation for a moderate risk profile

Source: Standard Chartered

Foundation: Our tactical asset allocation views

Fig. 6 Performance of our Foundation Allocations*

Source: Bloomberg, Standard Chartered; *12-month performance data from 24 September 2024 to 24 September 2025, 3-month performance from 24 June 2025 to 24 September 2025, 1-month performance from 22 August 2025 to 24 September 2025

Fig. 7 Opportunistic ideas performance

Perspectives on key client questions

Steve Brice

Global Chief Investment Officer

Tay Qi Xiu

Portfolio Strategist

Irrational exuberance like it’s 1996 or 2000?

Questions over whether markets are in a state of “irrational exuberance” have resurfaced of late. The phrase, first used by then Fed Chair Alan Greenspan in 1996, is remembered as a warning of the dot-com bubble. Back then, it was the power of the internet and its revolutionary impact on businesses that drove valuations to dizzying heights, making people circumspect of chasing the rally. Today, it is artificial intelligence (AI) that is dominating conversations, allowing the S&P500 to stage an impressive 37% rally since the April lows.

Yet, history shows that after Greenspan’s speech, US equities more than doubled, peaking in 2000, before suffering a sharp correction. The lesson is clear: markets can remain buoyant for far longer than expected and attempts to time peaks and troughs can prove costly.

Why markets run too far, then fall too hard

One way to understand why markets can overshoot fundamental anchors is through the lens of “fat tails”. Traditional finance is based on the idea that returns are based on a normal distribution – a neat bell curve where returns are clustered and symmetric around the mean. In practice, however, market returns are more skewed, with a higher probability of extreme moves in both directions. For instance, there have been four occasions since 1900 where monthly losses exceeded 15%. In theory, the probability of this occurring should be close to zero. Yet, outsized losses do occur, highlighting the tendency for markets to confound theory. Equally so, extended rallies, like that in the late 1990s, can go beyond what valuations suggest as returns deviate in terms of scale and how long they last, from what is expected.

Policy, geopolitics and AI reinforce fat-tailed dynamics

We believe the environment today reinforces this fat-tailed dynamic, and the reasons for this are multiple.

First, policy uncertainty is a key factor. In the US, decision-making appears increasingly concentrated and conducted absent of public discourse, resulting in a higher risk of policy surprises. The impact of new policy decisions is

Fig. 8 US stocks currently trade at valuations rivalled only by dot-com era highs

S&P Composite index cyclically adjusted P/E ratio*

Fig. 9 However, valuations are often a poor indicator of future equity returns

Period-ahead returns when valuations were previously at current levels

*A measure of S&P Composite index stock valuation defined as price divided by the average of 10 years of earnings, adjusted for inflation. Source: Shiller dataset, Bloomberg, Standard Chartered

also difficult to quantify, due in part to a lack of precedence. For instance, we expect import duties to be inflationary in the US and disinflationary in the rest of the world, but the quantum and length of impact is unclear. This comes at a time when government finances are stretched in much of the western world, adding another level of complexity.

Fig. 10 A fat-tailed distribution shows the tendency for big market swings to occur more often than expected

Illustrative example of a fat-tailed distribution

At the same time, the global geopolitical order is being rewired. The US’s assertive stance risks a gradual erosion of its influence as countries diversify their alliances, with recent engagement between China and India serving as an example of shifting dynamics.

Fig. 11 There have been four occasions since 1900 when US equities saw monthly losses exceeding 15%

Observed vs theoretical outsized monthly market losses

Source: Shiller dataset, Standard Chartered

Finally, AI is both a source of optimism and potential disruption. Current narratives emphasise productivity gains, stronger growth and disinflationary benefits. Yet, longer-term risks remain, given the potential for AI to displace jobs. In our view, as long as corporate earnings remain robust, the impact of AI on employment conditions is not expected to be overly damaging. However, should a recession occur, AI could accelerate job losses and amplify the severity of downturns.

Staying invested matters more than timing the market

Against this backdrop, investors should resist the instinct to retreat from markets. Historical precedent shows that even in

periods of elevated valuations, markets can continue to rise for an extended period. Sitting on the sideline risks missing these gains, particularly if the rally extends substantially from current levels.

Instead, the recommended course of action is to remain invested while using diversification across asset classes and geographies as the first line of defence. In addition, selective use of option strategies to provide downside protection can also be considered.

Fig. 12 Adding lowly correlated streams of returns to the portfolio will improve risk-adjusted returns

Risk-adjusted returns of various portfolios*

*Based on 20 years of historical data. Equal weighed portfolios. Source: Bloomberg, Standard Chartered

Balancing protection and participation

Downside protection is, however, costly. A premium in implied volatility relative to realised volatility, along with elevated skew, point to expensive put protection that can drag on performance if mistimed. One way to reduce costs and mitigate timing risks is through collar strategies, where call options are sold to help fund put purchases. This cushions portfolios against sharp losses while reducing the costs of outright puts, though it does cap upside potential. In our view, a partial collar overlay of 20-30% offers a sensible balance between cost, protection and equity participation.

Fig. 13 A S&P500 portfolio overlaid with a Collar strategy offers protection while reducing hedging costs

S&P500 with collar strategy and S&P500 drawdowns*

*S&P500 portfolio with collar strategy is represented by the CBOE Collar 95-110 index. Source: Bloomberg, Standard Chartered

Macro overview – at a glance

Our macroeconomic outlook and key questions

Rajat Bhattacharya

Senior Investment Strategist

Our view

Core scenario (soft landing, 55% probability): The resumption of Fed rate cuts, fiscal easing in the US, Germany and China and monetary easing across EMs sustain the case for an economic soft landing over the next 6-12 months. We expect the Fed to cut rates by another 50bps in 2025 and a total 100bps over the next 12 months to support jobs, as the inflation impact of tariffs appears limited. Trade tensions have eased significantly after the US reached tentative agreements with key partners.

Downside risk (hard landing, 30% probability): We see a 30% chance of a US hard landing/recession in the next 12 months if policy uncertainty worsens consumer and business confidence, causing job losses. A brief US government shutdown is a near-term risk, while a US bond and USD sell-off on concerns about the fiscal deficit or Fed independence are medium-term risks.

Upside risk (no landing, 15% probability): We reduce the probability of a no-landing scenario from 20%, in favour of a hard landing, given residual trade and policy risks. As trade tensions ease, policy stimulus worldwide could revive consumer and business sentiment, leading to a more balanced global economy. A US-China grand bargain could provide further upside.

Key chart

As global trade tensions ease, we expect central bank rate cuts in the US and key EMs and fiscal easing in the US, Germany and China to help the global economy achieve a soft landing.

Fig. 14 Monetary and fiscal policy easing likely to lead to an economic soft landing

Asset Classes

Bonds – at a glance

Cedric Lam

Senior Investment Strategist

Ray Heung

Senior Investment Strategist

Anthony Naab, CFA

Investment Strategist

Our view

Global bonds remain a core allocation in our foundation portfolios. We expect short-term yields to decline more than long-term yields: our 12-month target for the Fed Funds rate is 3.25%, while we expect the US 10-year government bond yield to range between 3.75% and 4%. Concerns about US fiscal policy, tariffs and Fed independence will keep rates volatility high. However, we would view any jump in long-term yields as transitory and as an opportunity to lock in still-high absolute yields. Bonds with 5-7-year maturities offer the most attractive balance between attractive yields and fiscal and inflation risks. We maintain an Overweight in EM local currency (LCY) government bonds, driven by a benign local inflation and rate cut outlook, improvement in fiscal positions and our expectation of a weak USD. We raise Developed Market Investment Grade (DMIG)corporate bonds to Neutral, while downgrading DM HY bonds to Underweight. Longer-maturity IG bonds should outperform HY peers in our base scenario of short-term yields falling more than long-term yields (a ‘bull steepening’ scenario).

Opportunistic ideas: We remain bullish on UK government bonds (FX-unhedged), US Treasury Inflation-Protected Securities (TIPS) and short-duration US HY bonds.

Key chart

Fed’s median rate cut projection for December 2026 likely too conservative. We expect Fed to cut by more.

Fig. 17 IG bonds usually outperform HY peers when the yield curve bull steepens

Steeper yield curve favours DM IG bonds

We expect the Fed to cut rates by an additional 50bps by the end of 2025 and a total of 100bps over the next 12 months, bringing the Fed funds rates to 3.25% by September 2026. Against this backdrop, we expect the US 10-year government bond to trade in the 4-4.25% range over the next 3 months and 3.75-4% over the next 12 months.

Overall, we expect a steeper yield curve and continued interest rate volatility. The market’s expectation of nearly three Fed rate cuts in 2026 contrasts with the Fed’s projection of just one, but we believe jobs data will allow the Fed to ultimately align closer to the market. IG bonds are more sensitive to rates than HY bonds. As interest rates fall, IG bonds should outperform HY. This prompts our upgrade of DM IG to Neutral and our downgrade of DM HY to Underweight. The Underweight in DM HY also aligns with our preference to take more risk exposure via equities rather than HY bonds, given equities offer more exposure to potential upside in a bullish scenario than bonds at current valuations.

We continue to favour the 5-7-year bond maturity bucket and believe it offers the best balance between exposure to attractive yields and potential price gains from falling yields, while avoiding excessive exposure to inflation or fiscal risks associated with very long maturities.

Overweight EM LCY government bonds

We stay Overweight EM LCY government bonds. In addition to providing high real (net-of-inflation) yields, we view the asset class as well-suited for a risk-on environment in bonds. The resumption of the Fed’s rate cutting cycle provides more flexibility for EM central banks to ease their monetary policies. Our expectation of a weak USD is also supportive. EM LCY government bonds provide diversification benefits, with a low-to-moderate correlation with major DM bonds. However, we acknowledge that EMs remain susceptible to market volatility and geopolitical uncertainty, with weaker US demand and higher tariffs posing risks to these economies.

EM USD government bonds a core holding

Despite recent cheapening, bond yield premiums remain tight. This asset class is sensitive to market volatility and geopolitical uncertainty. However, a weak USD and easing US interest rates should reduce debt servicing costs for EM economies. Additionally, the improvement in fiscal and current account positions in major EM countries mitigates the need for offshore bond issuance.

DM IG government bonds a core holding

Major DM central banks are anticipated to deliver more policy rate cuts (more in the US, less in Europe, though Japan is expected to raise rates). This can support the sub-asset class and help lower short-end yields, while longer-end yields may stay elevated due to fiscal and inflation concerns. Government bonds remain very sensitive to interest rate volatility.

DM IG corporate bonds a core holding

We upgrade DM IG corporate bonds to Neutral (core holding) from an Underweight allocation. Inflows into IG bonds have been robust, particularly in the 5-7-year maturity bucket, as investors are keen to lock in relatively high yields as the Fed restarts rate cuts. The relatively high sensitivity to falling bond yields is expected to contribute positively to returns, but tight yield premiums compared to historical averages will cap performance. This leads us to assign a Neutral allocation to the sub-asset class.

Asia USD bonds a core holding

EM Asia remains vulnerable to US tariff risk. Like other markets, Asia bond valuations are currently high. However, strong external balances, flexible monetary policy and robust refinancing capabilities support rich valuations, in our view. Domestic demand for Asia USD bonds remains strong, as seen in strong allocations within Asia to new bond issuance.

Underweight DM HY corporate bonds

We are Underweight DM HY corporate bonds. Yield premiums are tight and there is wide dispersion within industry sectors, making it increasingly challenging for the sub-asset class to outperform other major bond asset classes.

Opportunistically bullish: Short-duration US HY bonds

We prefer positioning in HY bonds through our opportunistic bullish idea on short-duration US HY bonds. These offer attractive absolute yields with relatively low expected default rates given their short maturities. Historical performance also argues for more attractive risk-adjusted returns than the broader asset class.

Opportunistically bullish: US TIPS

With market inflation expectations still rangebound, we find it attractive to add to inflation-protected bonds (TIPS). TIPS provide protection against upside risks to longer-term inflation amid fiscal concerns, tariff-driven inflation and commodity-driven inflation due to any flare up in geopolitical risks.

Opportunistically bullish: UK government bonds (Gilts, FX-unhedged)

We favour the nominal yield pick-up offered by Gilts over other DM government bonds. UK labour market data continues to weaken, likely leading to weaker wage growth and contributing to disinflationary pressures.

While inflation expectations may remain elevated in the near term, tight financial conditions should keep growth subdued and inflation in check. These factors would likely enable the BoE to cut rates further over the next 6-12 months, especially if the upcoming budget leads to a tighter fiscal policy.

Equity – at a glance

Daniel Lam, CFA

Head, Equity Strategy

Fook Hien Yap

Senior Investment Strategist

Michelle Kam, CFA

Investment Strategist

Jason Wong

Equity Analyst

Our view

We remain Overweight global equities. We upgrade US equities to Overweight on sustained earnings momentum from AI-related investments and accommodative monetary policy, which can help the US economy glide to a soft landing. Any near-term consolidation, driven by elevated valuations and seasonality, would present attractive opportunities.

We retain an Overweight allocation on Asia ex-Japan (AxJ) equities, given US tariff risk is in the price. We are Overweight China equities within the region, with key catalysts being fiscal support and domestic AI development. Indian equities are a core holding, with the recent simplification in regulations – effectively a goods and services tax cut – lending tailwind to growth.

We have a Neutral allocation to Japan equities, underpinned by continual improvements in corporate governance, though uncertainties arising from the upcoming Liberal Democratic Party leadership election is a near-term risk.

We downgrade Europe ex-UK to an Underweight allocation due to heightened political and fiscal uncertainties. UK equities also remain an Underweight allocation, given the market’s low exposure to growth sectors.

Key chart

US and AxJ equities are buoyed by AI-driven earnings

Fig. 18 US and Asia ex-Japan equities’ 12-month forward earnings growth rates are leading other regions; US equities remain resilient amid a rate cut cycle

US equities – Overweight

We upgrade US equities to Overweight. While there can be a short-term pullback amid elevated valuations and seasonality, the resilient earnings outlook across growth sector stocks will likely support a continued share price uptrend in the coming 6-12 months. Our expectation of a soft-landing scenario and contained inflation risks suggest room for further Fed cuts to support growth. Despite continued re-rating, we believe the Fed rate cuts lend new impetus for US equities to go higher. There are 12 instances in the last 40 years of the Fed cutting rates when equity markets were within 1% of their all-time high. In all instances, US equities rose over the subsequent 12 months.

Fig. 19 Fed rate cuts near equity market all-time highs have historically resulted in further gains

12-month return in S&P 500, when the Fed cut rates within 1% of stock markets’ all-time high.

Overweight Asia ex-Japan equities

We are Overweight Asia ex-Japan equities. The region gains from strengthening Asian currencies against the USD, which is expected to reduce input costs and boost earnings for domestic corporations. De-escalating trade tensions and still-reasonable valuations are major tailwinds.

Within Asia, we retain our Overweight China allocation. Despite lacklustre economic figures in August, a potential fiscal stimulus from next month’s Politburo meeting could support earnings growth expectations. The 12m forward EPS growth projection of 11% also outperforms major DMs. Within China, we are Overweight offshore equities relative to onshore peers. Offshore equities have higher weightings in growth sectors, where we see upside potential amid cheaper valuations versus US counterparts. Moreover, there is a possibility of Chinese policymakers adding cooling measures for onshore markets – though we note margin financing, adjusted for market cap, is still not at an alarming level.

We downgrade Korea equities to a core holding. While corporate reform initiatives remain tailwinds, the KOSPI index is up by over 40% year to date (YTD). Valuations are no longer compelling, with MSCI Korea’s 12-month forward P/E trading at 11x, in line with its historical average. Taiwan warrants a core allocation, in our view. There is continued development on AI infrastructure, but overall earnings revisions are negative.

Fig. 20 Outstanding balance of margin trades remains unalarming, after adjusting for listed market capitalisation

Outstanding balance of margin trades on absolute level and as a % of listed market cap in China

We have a core allocation to India. The strong structural story remains, with fiscal measures such as the income and GST tax cuts supportive of corporate profits. The market is less expensive after the consolidation through 2025; in USD terms, the market is down 1% versus Asia ex-Japan’s over 25% return YTD. That said, the 50% US tariff on Indian exports – significantly above Asian peers – illustrate that tariff risks remain in place. We favour mid-cap stocks given they offer robust growth potential at more reasonable valuations.

We are Underweight ASEAN on a weak EPS momentum and currency outlook. The price/earnings-to-growth ratio of 2.6x is also significantly higher than the broader AxJ region’s 1.2x.

Japan equities – Core holding

Japan equities remain a core holding. Corporate governance reforms remain a catalyst, while economic resilience and a reflationary environment should continue to support growth across domestically exposed cyclical sectors. The election for leadership in Japan is a near-term risk. Further BoJ hikes resulting in a stronger JPY could also curtail earnings projections, given Japanese equities’ exposure to foreign earnings.

Europe ex-UK equities – Underweight

We downgrade Europe ex-UK equities to Underweight. We believe it is difficult for the region’s markets to outperform Asia ex-Japan and the US. Economic growth projections remain subdued while trade tariffs and geopolitical tensions continue to lurk in the background. Valuations are elevated, with the 12m forward P/E ratio for the MSCI Europe ex-UK index at around 1 standard deviation above its long-term average.

UK equities – Underweight

We are Underweight UK equities. Its defensive composition is likely to underperform the more growth-oriented regions, such as Asia ex-Japan and the US. Subdued fund inflows and a challenging macro backdrop will likely dampen investor sentiment on a 6-12 month horizon.

Equity opportunistic views

Fook Hien Yap

Senior Investment Strategist

Add US technology, gold miners on a pullback

We would initiate an opportunistic position in the US technology sector after a 5%* pullback. Some indicators of equity market positioning are looking stretched, which could lead to consolidation and entry opportunities. We are positive on the sector as AI spending spurs earnings growth. Mega projects are supporting the semiconductor industry and cloud service providers.
Similarly, we would initiate an opportunistic position in gold miners after a 5%* pullback. We are positive on gold prices with structural central bank purchases and ETF inflows. Meanwhile, gold miners are enjoying higher profit margins and surging free cash flows, which are being used to fund attractive share buybacks.
We take profit on US major banks with a gain of 61.9% since 1 August 2024, ahead of potential market volatility as the Fed embarks on a rate cutting cycle, which could impact banks’ interest income.

Fig. 21 Opportunistic ideas

Open bullish ideas

Europe industrials: We continue to see gains with the infrastructure and defence spending catalyst as Europe makes up for years of underinvestment. Germany is leading the charge, while other countries may face more budget constraints. However, we see geopolitical pressures sustaining this multi-year fiscal tailwind that would support the aerospace and defence, electrical equipment, machinery and construction industries, which form the bulk of the industrials sector. A sharp slowdown in Europe’s economy is a risk.

Hang Seng technology: We expect the valuation re-rating to continue as the earnings outlook and operating environment improve heading into next year. Policymakers continue drive AI adoption and technology development, while major technology platforms are investing heavily and seeing some fruits in monetisation and increased efficiency. Adverse regulatory changes are a risk.

Sector views: Staying constructive

We continue to prefer growth exposure, with an Overweight on technology in the US, Europe and China, supported by AI investments and software development. In the US, we downgrade financials to Neutral, while we upgrade healthcare to Overweight. Healthcare has been the worst-performing US sector this year, but we see signs of stabilisation as the valuation discount appears enticing. We upgrade real estate to Neutral, as lower rates are a tailwind, while we downgrade staples to Underweight as we expect higher costs and tariffs to weigh on profit margins. In Europe, we remain Overweight financials as a value play, and we upgrade energy to Neutral as value is emerging with rising dividend yields. In China, we maintain exposure to improving consumption and AI adoption, with preference for technology, communication and discretionary. Companies in these sectors have strong balance sheets, generate strong cash flows and are investing heavily in AI infrastructure amid strong demand.

Fig. 22 Our sector views by region

FX – at a glance

Iris Yuen

Investment Strategist

Our view

We expect the USD to remain weak, pushing the USD index (DXY) to 96.5, over the next three months amid growing evidence of a softening labour market. We expect the Fed to cut interest rates by 50bps by year-end, outpacing cuts by other major central banks and narrowing interest rate differentials vs. other major economies to the detriment of the USD. The weighted rate differential has fallen rapidly from the start of the year and is currently below its 5-year average. We also expect the USD to be particularly sensitive to negative US economic surprises.

We expect USD weakness to extend towards 95 over a 6-12-month horizon. US import prices, excluding tariffs, have declined modestly, indicating US importers have largely absorbed most of the additional costs of tariffs. We expect the Fed to deliver a cumulative 100bps cut over the next 12-months, supporting a US soft landing. Meanwhile, the structural drivers of USD strength over the past few years, including US exceptionalism, high real rates and safe-haven flows, are fading. Risks to our view include a renewed surge in inflation, hawkish Fed policy and geopolitical shocks that could reignite USD demand.

Key charts

Fig. 23 USD index (DXY) falling in line with interest rate differentials; we expect this trend to continue

Fig. 25 Currency volatility largely below 5y average

Fig. 24 Fed likely to outpace other central bank in magnitude of rate cuts

Fig. 26 Rate differentials point to further downside for USD/JPY

Fig. 27 Summary of currency forecasts and drivers

Gold, crude oil – at a glance

Manpreet Gill

Chief Investment Officer, AMEE

Tay Qi Xiu

Portfolio Strategist

Our view

We raise our 3- and 12-month gold price targets to USD 3,850/oz and USD 4,100/oz, respectively.

We expect West Texas Intermediate (WTI) oil to remain in a range around USD 65/bbl. We continue to expect excess supply to be the dominant factor. This should cap temporary rebounds in prices due to potential geopolitical risks.

Key chart

Fig. 28 Inflation-adjusted gold prices are now at the highest ever level in modern history

Fig. 30 Fed rate cuts will coincide with seasonal strength in Indian and Chinese jewellery demand

Fig. 29 Historically, the start of the Fed easing cycle supports gold prices

Fig. 31 The oil market is likely to remain in surplus this year, keeping prices in check

Gold outlook: We are optimistic on gold and expect prices to sustain a “higher-for-longer” trajectory. Supporting factors include: 1) the resumption of the Fed rate cuts, 2) seasonal jewellery demand from India and China and 3) a backdrop of US policy and geopolitical concerns. Stretched positioning raises near-term risks, but we expect pullbacks to be met with “buy-on-dip” demand, with prices ultimately surpassing USD 4,000/oz over the next 12 months.

Oil outlook: We continue to expect WTI oil prices to remain rangebound around USD 65/bbl over 6-12 months. Excess supply means short-term spikes (led by geopolitics, for example) are likely to be quickly capped. Sentiment is somewhat bearish, with the emergence of a rising number of forecasts below USD 60.

Additional perspectives

Quant perspective

Bullish equities short term and long term

Francis Lim

Senior Quantitative Strategist

Maggie, Au Yeung

Quantitative Analyst

Summary

Long-term and short-term indicators are bullish risk assets.

Long term: Our stock-bond model continues to prefer equities over bonds Since its OW view on equities in July outlook, the model has generated an absolute return of 6.4%, outperforming the 60/40 equity by 1.4%. In our latest update, the model has adjusted its Overweight allocation to equities lower, as Developed Market (DM) valuations are starting to look expensive. Fundamental factors remain strongly supportive of equities, with the latest ISM new orders signalling a recovery in economic sentiment. The market breadth factor is also healthy, as there is strong participation by global markets in the current equity rally.

Short term: Our new market model is bullish on S&P500 and MSCI AC World indices as momentum signals are bullish and risk indicators such as implied volatility from equity and EM currency options market remained low. The model, introduced in August, scans through 7,000+ factors to identify long-term drivers of equity-market regimes and forecast these regimes via machine learning algorithms. Since our publication of the model in August, the bullish view on the S&P500 has gained 3.7%, with the latest estimated probability of a bear market remaining low at only 1.1%. The MSCI AC World model is similar, as the estimated probability of a bear market is only 0.8%.

But risk of a short-term consolidation in equities is likely after recent strong gains. Our market diversity indicator shows that investor positioning for global equities looks increasingly stretched. However, deep corrections are unlikely, given the supportive signals from our short-term and long-term quantitative models. US communication services and China materials and communication services are also currently being flagged.

Key chart

Our stock-bond model is Overweight equities, as the model score sits at +3 (out of 5). Fundamental and technical factors are bullish equities.

Fig. 32 Breakdown of our stock-bond rotation model’s scores since inception in Feb-23

Our new market model for the S&P500 is bullish, as equity and EM currency volatilities are low, while momentum dynamics are positive.

Fig. 33 Our technical model turned bullish on the S&P500

Fig. 34 Long- and short-term quantitative models are bullish risky assets

Long-term models below have a typical time horizon of 3-6 months, while short-term models have a 1-3 month horizon

Performance review

Foundation: Asset allocation summary

Foundation+: Asset allocation summary

Market performance summary

Our key forecasts and calendar events

Today, Tomorrow and Forever

Explanatory notes

1. The figures on page 5 show allocations for a moderately aggressive risk profile only – different risk profiles may produce significantly different asset allocation results. Page 5 is only an example, provided for general information only and they do not constitute investment advice, an offer, recommendation or solicitation. They do not take into account the specific investment objectives, needs or risk tolerances of a particular person or class of persons and they have not been prepared for any particular person or class of persons.

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