In times of volatility and uncertainty, stay diversified: analysts

As a businessman, Trump tends to run the country in a similar way to running a business. The man comes with a track record of adopting a high-risk (and sometimes high-reward) approach to running his business and now, his country.

Hence, it is no surprise that investment managers are expecting a volatile year for 2025. Amid the volatility, the street is expecting the US economy to stay strong, albeit with some sticky inflation towards the second half of the year. 

“While our base case economic outlook still anticipates solid earnings per share (EPS) gains across most of the world through next year, we believe some risks to the US and world economy have risen. Recent market turbulence reflects this, pointing to diversified holdings and risk management for portfolios this year,” says Citi Wealth.

Citi has a strong case for boosting income generators within portfolios as stocks rallied and bond yields rose. 

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 “We maintained our tactical global equities allocation at +3.5% and fixed income/cash weighting at –3.5%. However, our strategic benchmark weighting for credit has risen at the expense of equities,” it says. 

Julius Baer, on the other hand, has kept its views unchanged. “Trade tariffs are first and foremost a shock-and-awe tool used for negotiations. Their imposition should remain temporary, bearing somewhat contained inflationary impacts within the US and meaningful deflationary impacts outside the US,” says Carsten Menke, head of next-generation research at Julius Baer. 

“As expected, we have entered a period of political noise and general uncertainty, an element that framed our views heading into 2025. We will continuously assess the situation and update on our views,” he adds. 

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Julius Baer’s head of fixed income analyst Dario Messi believes that the bond market has already had a lot to digest in 2025. Moves by various central banks have already resulted in some remarkable swings in bond prices, underlining the Swiss bank’s key assumption that policy uncertainty will keep rate volatility high. 

“As such, we maintain our view that fixed income duration management will remain key in the coming months. Consequently, a balanced duration approach with a tactical overlay remains a viable strategy, which has served well so far. More specifically, we have identified the three-seven year segment as a sweet spot,” says Messi. 

Messi opines that whenever the 10-year US Treasury yield inches towards 5%, investors can capitalise on opportunities to redeploy redemptions towards the upper end of this range. Conversely, when yields retreat to 4% or below, the lower end of the spectrum presents a more attractive entry point. 

“Preferably, we would still do it with corporate credit. Moreover, on a relative basis, we still feel more comfortable with relatively longer maturities in EUR bonds as compared to their USD counterparts,” he adds.

Stay diversified 

Market watchers are keeping a conservative stance on the current situation in the US, which is expected to remain volatile with surprises to come. These are times when it is best to keep diversified — though it may sound like investors should invest a little in everything, because no one can truly predict what is going to happen in the near term, with Trump coming up with new and creative policies. 

VP Bank’s group CIO Felix Brill is also expecting a lot of volatility this year coming out of the US. Hence, he is recommending investors to diversify into emerging markets, such as India. China, too, is a promising market, but investors have to approach the China market with a more cautious stance, being more selective in certain sectors such as tech, while staying away from real estate. 

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Meanwhile, VP Bank’s co-head Singapore and CIO Asia Thomas Rupf feels that Asia continues to be the engine of growth and will be a region that is quite resilient to noise. “The region still has strong balance sheets in place and some room for more fiscal policies to come in,” says Rupf.

The index performances of some Asian markets have shown quite a large disparity (see chart below). Between the MSCI Taiwan and MSCI Korea, there is a performance difference of over 50%. Rupf points out that both markets are tech exporters and that 2024’s was all about the “AI versus non AI” theme, where it clearly shows that Korea is lacking. China, on the other hand, is finally positive after three years of negative returns.

“Korea did perform weakly last year but that is a value play to look at, especially compared to Taiwan that is still extremely highly valued and quite vulnerable on the export side, because it is a very open economy. It could be a safer bet to go for a laggard such as Korea,” he adds. 

Raisah Rasid, global market strategist at JP Morgan Asset Management, believes that with all the noise in the US, it is essential for investors to stay diversified. “Looking outside (of the US) is also key,” she says, identifying Asean as a “sweet spot” market for investors to look at due to its lower exposure to US trade and its strong domestic revenue source.

“It is still essential for investors to stay active and identify ongoing trends, looking from a more bottom-up perspective, especially when it comes to stock picking,” says Rasid.

Eastspring Investments’ CIO Vis Nayar also sees Asian equities as a “good diversifier” that can provide a potential buffer to portfolios. “Defensive equity income strategies have historically been popular in Asia and a good addition to portfolios,” he says. 

“In fixed income, we want to be in high-quality fixed income and be thoughtful with duration,” says Nayar. “We’re thinking of the diversifying countries as India with its structural story, Japan as it is broadening out of recovery and China, which is potentially a fiscal wild card that can drive markets again.” 

Raw materials

Amid volatility and uncertainty, gold seems to be a safe haven. Gold has reached a new all-time high, with prices pushing past US$2,900 ($3,926) per ounce as at Feb 12, driven by renewed fears of US tariffs and weaker-than-expected US growth. 

“Sentiment among short-term traders and speculators is very bullish, while Western investors seem to be missing out on the rally. Beyond US politics and US growth, emerging-market central banks appear to be back in the driving seat of the market,” says Julius Baer’s Menke.

Holdings of physically backed products are trending sideways and sales of gold coins are hovering around multi-year lows. Instead, central banks appear to be back in the driving seat of the gold market. Menke noticed that purchases picked up again towards the end of last year, although primarily via unreported buying, which he tracked based on the trade flows in and out of the UK and Switzerland. 

Reported buying remained rather muted, with China being a case in point. “For the full year, we believe that China added more than 300 tonnes to its gold reserves, of which only 44 tonnes were reported,” says Menke. 

“Specifically for China and more broadly for emerging-market central banks, we still see growing geopolitical tensions as the main driver behind their desire to be less dependent on the US dollar as a reserve asset and — in an extreme case — less susceptible to US sanctions,” he adds. 

 VP Bank’s Brill is also long-standing on gold, and upbeat on other commodities that will support the AI boom. For instance, copper is a key element in the energy transition and an essential component in all electronic devices. Alongside the AI boom, electric vehicles have been gaining traction and will use up at least twice the amount of copper than a regular internal combustion engine or ICE vehicle.