And of course, Asia-Pacific equities continue to trade at a discount to US markets. A partial reversal of foreign fund flows, which have favoured the US for the past decade, could boost Asia significantly, given its smaller relative market size. India stands out for long-term structural growth, propelled by a growing middle class, favourable demographics, and rising per capita income. Crabb describes India as “a great story” with growth potential and market tailwinds.
Korea is highlighted for reforms in corporate governance and capital return, while China shows signs of bottoming out in earnings after an extended period of weakness. Domestic Chinese investors continue to favour gold, reflecting both uncertainty and inflation concerns.
Overall, portfolio managers are now neutral on equities after trimming their defensive stance following the April sell-off, favouring selective allocations. “After the April sell-off, irrational exuberance comes back into markets,” says Colin Graham, head of multi asset & equity solutions.
“We have reduced the underweight in equities after being defensive in April. Now, we’ve gradually bought back in, but we have followed where we have the highest convictions, and that would be emerging market equities Asia, including Japan, but we’ve taken money out of Europe and the US.”
See also: Tariff uncertainty remains ‘biggest elephant’; ‘self-help’ measures to drive Singapore
Within the US, concerns remain about elevated valuations, especially outside the large-cap segment. Smaller US companies are seen as more exposed to tariffs and less able to benefit from tax allowances on capex and research and development. As a result, the preference is for large caps in the US, Graham explains.
Part of the reason why investors turn more cautious on the US relative to other markets is the weakening of the US dollar. However, the duration of the weakness is uncertain. Capital flows, interest rate differentials and US growth still support the currency, but investors are moving towards a more neutral dollar position and beginning to seek opportunities in non-dollar assets. “We have seen some buying of non-dollar assets outside the US,” says Graham, whose view on the greenback is now “neutral”, from “overweight”.
The outlook for fixed income is neutral on duration, with bond yields in the US trading in a range and offering little direction. Within credit, managers are neutral on investment grade and underweight on high yield, citing narrow spreads. Preference is given to emerging market debt, which offers higher real yields, supported by the prospect of a weaker dollar.
See also: Asian bonds gain favour as real yields rise and USD weakens: Eastspring
The way Graham sees it, emerging market yields are high, which makes them attractive. But catalysts are missing, resulting in some caution in the emerging markets. “We’ve only just started going long emerging markets and long emerging market debt, because the catalysts weren’t there to realise those valuations. So, a weaker dollar is the catalyst that we have been waiting for,” he adds.
Thu Ha Chow, head of fixed income Asia, maintains a cautious view on US bonds and prefers emerging market and European debt, citing lower leverage, stronger fundamentals and better yields. Despite the tariff deals, she thinks that the economic slowdown in the US still beckons.
“Now it is not a crash, it’s just a slowdown, probably a soft landing of some form. So that means that there are still conditions for which it’s supportive of risk assets, but probably on a relative basis, much more favourable for emerging market assets,” she says.
Elsewhere, fiscal expansion in Europe, particularly on defence, is expected to continue, with Germany highlighted for its capacity to spend more given a moderate debt-to-GDP ratio. However, positive momentum is tempered by doubts over sustained fiscal commitment from all member states. In Japan, wage growth is finally returning and capital expenditure is rising. Share buybacks and improving capital discipline are noted as positive developments.
Meanwhile, Robeco has reduced allocations in commodities, particularly in oil, due to oversupply concerns, while gold and other metals remain favoured. US imports remain robust despite tariffs, with evidence showing that shipping volumes from China are holding within historical ranges.
The cost of tariffs is expected to fall on US importers and consumers, with Robeco working on an assumption of a 50-50 split. Graham points out, “It’s very clear that world trade is continuing to go despite this overhang of tariffs... The companies exporting to the US will not be cutting their prices, so the tariff effect is going to be taken by the importers in the US and the consumers.”
