A key uncertainty, Brill emphasises, is the weakness and volatility of the US dollar. The currency, traditionally viewed as a global safe haven during financial turmoil, has recently struggled to maintain this status. “The dollar was always in high demand if there was stress in financial markets,” he notes, adding that this was seen during the Global Financial Crisis and Covid-19 pandemic.
“But this time around, in April, it didn’t work at all,” Brill says, noting the significant departure from past market behaviour. “Maybe now the US is the source of distress in markets… and people are not running towards the dollar. [After Liberation Day], they were trying to get rid of it.”
The weakened US dollar situation is partly due to deliberate actions taken by President Trump’s administration. According to Brill, “the Trump administration wants to have a weaker dollar because it helps to put pressure on the trading partners. And maybe it might be a bit of a risky game, because it makes things much more expensive for Americans.”
While markets have stabilised, the strategic ramifications of continued dollar depreciation remain substantial, prompting VP Bank to employ cautious hedging strategies. Brill explains the bank’s nuanced approach, saying, “Our take is twofold. We are sceptical of the dollar. Long term, the dollar will continue to weaken — we are pretty sure about that, because the US will have higher inflation, which is a driving force behind the purchasing power. But given that the sentiment is so negative and momentum signals are a bit stretched, there might be a bit of a pullback [in the short-term].”
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Rather than opting for full hedging, VP Bank has chosen a more selective approach. “We hedge part of the dollar in the portfolios, but not everything. First of all, it’s not for free. Hedging, if you try to hedge from a Swiss franc perspective, it’s 4% a year,” Brill adds, explaining the rationale behind the partial hedging decision.
Emerging frontier
The decline in the US dollar is a central narrative in VP Bank’s second-half investment outlook. This currency weakness influences numerous strategic opportunities, particularly in emerging market (EM) assets. “Typically, emerging markets do better in times when the dollar is weakening,” Brill notes.
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Thomas Rupf, co-head Singapore and CIO Asia, VP Bank, adds: “You see a negative correlation between the two (USD and emerging market performance) over the last 20 years.”
Brill highlights the compelling fundamentals that support VP Bank’s emerging market bond strategy, especially bonds issued in US dollars. “A lot of EM issue bonds in US dollars. It is actually quite nice if the US dollar is weakening because your debt servicing — your regular payments — are in US dollars. If the dollar weakens by 10%, you have to pay less, which is very good for the fiscal situation of those countries,” he adds.
Beyond currency considerations, EM have seen a significant structural improvement. According to Brill, they now offer attractive yields around 6% to 7% for diversified emerging market bond investments, higher than treasury bonds and at around the same level of duration.
“Structurally, EM are in a much better position than they were many years ago,” says Brill, adding that the GDP ratio and governance of EM have improved, while the inflation issue is not a big one in these markets. They may also have room to cut rates further.
Adding on, Rupf is in the view that the USD is overvalued at the moment and expects the currency over the medium-term to provide some tailwind for EMs. Another observation is that corporations in EM are seeing increasing profitability, as they increase margins and better manage their balance sheet.
The weak US dollar, coupled with the improving earnings, should support share prices going forward, according to Rupf.
VP Bank’s decision to increase exposure to EM bonds reflects a conviction that has been steadily rising. Brill elaborates: “We decided … to add exposure. We already had a substantial amount in our typical portfolios of emerging market bonds in US dollars, but now we added more and are overweight.”
The bank’s overweight stance on EM bonds is supported by historically low credit spreads and the expectation that global investors will continue to look for yield.
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According to Rupf, there are signs that “investor sentiment towards EM has shifted. There is renewed interest in the region as investors search for yield and value amid the low-yield environment in developed markets.” Rupf points out that this dynamic has made emerging market debt and equity a natural alternative for investors seeking portfolio diversification and growth.
Diversification game
Regarding equities, VP Bank remains invested but takes a disciplined, diversified approach. High valuations in certain markets have prompted caution. Brill particularly highlights the US equity market’s premium valuation relative to its historical averages, suggesting mid-cap stocks may present better opportunities. “If you look at the US, it’s quite expensive compared to its own history, even taking into account structural change,” he says, adding that the US mid-caps might be a “nice kind of diversification within the US market”.
The overarching equity strategy for VP Bank emphasises diversification to mitigate the inherent risks from current geopolitical and fiscal uncertainties. The way Brill sees it, “Rather than being bearish, we are being strategic, meaning that we are fully invested. You need to have equities in the portfolio, but we want to diversify it. So we don’t put our eggs only in one basket.”
Rupf adds: “Especially for international clients, currency that can matter a lot… If you have a globally diversified portfolio, the impact of currency and regional shifts is less dramatic.” He points out that recent market performance looked quite different depending on where the client was based or what their reporting currency was. “For US investors, real estate in Switzerland did 5% or 3%, but due to the appreciation of the Swiss franc, it’s now 17% for US investors,” Rupf notes, showing how multi-currency and multi-region portfolios can provide uncorrelated returns and risk mitigation.
Gold also retains strategic importance, reflecting its effectiveness in providing portfolio stability during uncertain times. Brill specifically underscores gold’s strength in 2025, affirming its value in the face of a weakening dollar and global volatility. “Gold once again had another really good start to the year. You could argue that this comes from, once again, uncertainty, and it’s a nice match in a portfolio, and gained traction.”
Brill urges caution regarding global trade tensions and tariffs, identifying them as ongoing risks despite recent market stability. While VP Bank sees global economic indicators as moderately supportive, the unpredictable nature of trade policy could spark renewed volatility. Brill cautions investors: “Assuming that we don’t see that clash — at the end, there will be deals and such, and it comes down basically to the alternatives.”
As for Rupf, he notes that markets have become somewhat complacent about tariff risks, but any escalation or unexpected developments could change sentiment quickly. VP Bank continues to monitor global headlines closely, given the frequency of policy changes and the tendency for market reactions to be abrupt.
Brill further emphasises the need for maintaining robust diversification in such volatile conditions. He firmly believes diversified portfolios help navigate unpredictable market swings, a strategy that remains at the core of VP Bank’s recommendations. “We think it’s very important to diversify — not only within your asset class within equities, but also have something like emerging market bonds or gold in your portfolio, because if you do that, you sleep much better.”
“We are being strategic. You need to have equities in the portfolio, but we want to diversify it,” he adds.
