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Wealth BuildingFixed Income & BondsForex, Gold & Alternative InvestmentsInvestment StrategiesStocks, ETFs & Trading
25 June 2025 I 4 mins read
Investors who have most of their equity positioning in US exposures are facing a common dilemma. This year, their equity portfolio returns have been dragged by not only the US equity underperformance relative to the rest of the world, but also a slump in the US dollar. Will this double whammy persist for the rest of the year?
More selective in US equity positioning
We continue to see the merits of staying invested in US equities as the earnings outlook remains supported and superior to other regions. However, the earnings growth gap versus other regions is narrowing. Coupled with the twin pains of growing US budget deficits and mounting debt concerns, we believe it would be prudent to maintain a well-diversified portfolio across major regions, while turning more selective in the US equity market. As an illustration, within the US technology sector, we are locking in some profit in the semiconductor segment after an impressive 40% rally since April. At the same time, we remain bullish on the software segment, where earnings are more resilient against macro uncertainty and have a more defensive, less cyclical growth profile.
Asia equities to benefit from USD weakness and policy stimulus
Intensifying geopolitical risks in the Middle East has reignited equity market volatility, denting the near-term upside potential. Despite this, we see mitigating factors for international equities. First on the list is the expected USD weakness. The past decade shows that every 1% drop in the USD resulted in 1-2% gains in Asia equities. In addition, we see domestic policy tailwinds across the region.
In China, the equity market has been a steady outperformer this year, and we expect monetary and fiscal policies to remain expansionary given persistent deflationary pressures and a weakening global outlook. We recommend a barbell strategy in China, balancing the growth-centric Hang Seng Technology index and the defensive high-dividend state owned enterprise shares listed in Hong Kong.
South Korea is likely to be an outsized beneficiary from reform tailwinds. Recently elected President Lee Jae-Myung is a pro-growth leader of the Democratic Party, which now also holds a majority of the seats in the National Assembly. Lee is widely expected to push forward a supplementary fiscal budget in excess of KRW 30 trillion to revive economic growth. He should also be able to pass into law the revised Commercial Law, aimed at enhancing corporate governance and narrowing the “Korea discount”. It is worth noting that notwithstanding its year-to-date outperformance, Korea equities still trade at an attractive 9x price-to-earnings ratio, with earnings growth expected to accelerate from low teens this year to high teens next year. This suggests ample room for re-rating of Korea equities.
India is another market which has enjoyed incremental policy support. The Reserve Bank of India delivered a bigger-than-expected 50bps rate cut in June as moderating inflation pressures provided room to stimulate economic growth towards the 6.5% target. The central bank also cut the cash reserve ratio requirement for banks by 100bps, potentially bolstering liquidity by INR 2.5 trillion. More accommodative financial conditions and greater fiscal support than prior estimates are lifting India’s corporate earnings outlook.
Low investor positioning in Asia equities augurs well for re-rating
Low investor positioning in Asia sets a conducive backdrop for this year’s equity market momentum to continue. According to EPFR Global, US equities attracted net global fund inflow of USD 132.6bn this year, despite concerns about the fading “US exceptionalism”. On the other hand, Korea saw a net fund outflow of over KRW 14 trillion (c. USD 10.1bn) for the first five months of the year, with the flows only starting to reverse course after President Lee won the election in June. Should we continue to see more self-help policy initiatives in the region, Asia equities will likely benefit from a resumption of net fund inflow and outperform other regions.
Diversify, diversify, diversify
We always talk about the need to avoid putting all our eggs in one basket. It is easier said than done, especially given that in the past few years simply investing in US equities or even a few single stocks had generated a spectacular return. Times have changed, however. With the evolving policy and geopolitical landscape, it is crucial to diversify our equity portfolio across regions and sectors. Ongoing geopolitical risks reinforce our thesis for diversifying across asset classes, such as gold, quality bonds, alternative investments, and safe haven currencies.
(Raymond Cheng is Chief Investment Officer for North Asia at Standard Chartered Bank’s Wealth Solutions unit)
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Global Market Outlook H2 2025:
Positioning for a weak dollar We are Overweight global equities. Policy easing worldwide, strong chances of a US soft landing and a weaker USD are supportive of risky assets. We favour diversified global equity exposure, within which we upgrade Asia ex-Japan equities to Overweight.