The stance reflects an economy that is “slowing but not collapsing”, with tariff-related effects feeding through gradually, and earnings that remain robust enough to contain recession risks. “For now, it’s key to stay invested,” says the bank’s global CIO Michael Strobaek. “We see new opportunities in fixed income markets, and have raised our exposure to EM debt in hard currency to overweight.”
EM tilt across equities, bonds and FX
Lombard Odier keeps a regional equity tilt towards EM over DM and, within sectors, maintains a bias to cyclicals while adding utilities given improving fundamentals on the defensive side.
The firm stays overweight overall in fixed income but redistributes risk: EM hard-currency bonds move to overweight on yields above historical averages and stable spreads, while global government bonds are cut to underweight.
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In developed credit, investment-grade is favoured over high yield. While on foreign exchange (FX), the bank has shifted to a negative view on the US dollar following weak July jobs data and the prospect of the Fed easing after its peers, a pattern that tends to erode the dollar’s yield advantage.
The cross-asset call builds on a more detailed EM thesis. Lombard Odier points to clearer US trade settings, persistent dollar weakness, improving sentiment and attractive relative valuations and yields. It reiterates an overweight in EM equities and increases allocation to EM hard-currency bonds, expecting a continued outperformance into 2026. The private bank highlights that, in relative terms, recent US tariff measures have been applied no more harshly to EMs than to some developed peers, leaving a number of EMs no worse off or even relatively advantaged. Taiwan and South Korea, key nodes in the global chip supply chain, face US tariff rates of 20% and 15% respectively, with scope for semiconductor-related exemptions in return for investment commitments.
A negative dollar view is another pillar. With markets converging towards Lombard Odier’s expectation of three Fed cuts by year-end, the bank argues the dollar’s yield support should fade. Historically, phases of elevated US “term premium” have also aligned with a weaker dollar, even if long-end yields moderate over time.
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The equity earnings backdrop is a help rather than a hindrance. The second quarter earnings season in the US was “solid” in aggregate, with margins expanding, roughly 80% of S&P 500 constituents beating expectations, with the capex wave linked to artificial intelligence (AI) beginning to translate into rising cloud and digital advertising revenues. Communication services and parts of utilities also benefit from power demand linked to data centres and wider electrification. Lombard Odier cautions, however, that performance remains narrow at the index level, and several traditional cyclical and defensive sectors lag. The bank took some profits on DM equities in July and still prefers EM among regions.
Strobaek underscores the selective approach to equity risk and the regional ranking. “We are selectively investing in EMs,” he says, adding that he has a preference for India and South Korea in equity markets. While Japan is not considered an EM, he likes Japan too as a DM play in Asia.
“Our tactical positions in developed market equities remain in line with our strategic allocations, with a preference for Japanese over UK stock markets, given their relative earnings growth outlooks and sector exposures,” he adds.
“We are still in this bull market,” he says, but the climb towards growth is expected to be more difficult moving forward. He expects three Fed cuts this year and calls that path “better for emerging markets than for the US itself”.
Rocky Mountain road
The house view is framed by a tariff-dominated landscape and a shift to a multi-polar world. The way Strobaek sees it, this multipolar world began sometime in 2016, characterised by two major events: Brexit and Donald Trump becoming the US president for the first time. “The two events symbolise that the post-World War II world, after 1989, no longer exists in the way that we think of. We are now standing… with enormous fractures in the global economy and financial system,” says Strobaek.
The bank’s chief economist and CIO Switzerland, Samy Chaar, uses a driving metaphor to describe the change in regime: “We’ve hit the exit of a comfortable highway. While we don’t think we’ve hit the exit to fall off the cliff, rather, we’ve hit the exit for another type of road, which is more of a highly demanding mountain road,” he says. The message is: The route demands more careful steering of portfolios, but it remains navigable.
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Lombard Odier's chief economist and CIO Samy Chaar believes that the road ahead amid tariffs and geopolitical uncertainties will be rocky. Investors will need to carefully navigate through their portfolios.
Tariffs are central to that terrain. The bank’s economics team judges that the full impact is delayed rather than dissipated. They expect a meaningful US slowdown in the second half but still view recession risks as contained, with three Fed cuts anticipated this year and a terminal policy rate of 3.0% next cycle. In Europe, growth appears more resilient, and the European Central Bank (ECB) is likely to have concluded its rate-cutting cycle, with rates held at 2%. China is slowing, but 2025 growth remains supportive for EM spillovers.
Switzerland is a case in point for the uneven tariff burden. On Aug 7, a 39% US tariff on most Swiss goods took effect after last-minute efforts to secure a deal failed. Exemptions cover pharmaceuticals, semiconductors, consumer electronics and certain raw materials, and re-exports of unaltered US goods. Lombard Odier estimates slightly less than two-thirds of Swiss exports to the US are affected; GDP growth for 2025 is cut to 0.9% from 1.1%. Domestic stocks with local exposure, plus banks, insurers and telecoms, should be relatively resilient, while affected goods exporters may face pressure. The bank keeps its Swiss National Bank (SNB) policy call at 0%.
The broader US fiscal situation has compounded the uncertainty. Trump’s “One Big Beautiful Bill” worsens the deficit trajectory by around US$4 trillion over a decade, by Lombard Odier’s tally, even after tariff revenue offsets. As Strobaek and Chaar view the bill as anything but beautiful, they project that publicly held debt will rise to 119% of GDP by 2034 under the new baseline. The bank sees “little macroeconomic upside” from the package and keeps US growth and inflation forecasts unchanged.
For markets, the bank’s July research flags that high-frequency data already show imported goods prices outpacing local substitutes in categories hit by tariffs, a pattern consistent with a mild pickup in core goods inflation. It expects core Personal Consumption Expenditures (PCE) to peak around 3.3%–3.4% by year-end before moderating, complicating the Fed’s calculus but not derailing easing. Against this, it trimmed developed-market equity risk and reiterated a relative preference for EM, corporate credit over sovereigns, and gold as a portfolio diversifier.
Japan is kept in the “resilient” bucket with a lower-than-feared tariff outcome and survey data still holding up. Lombard Odier expects another 25 basis points (bps) hike from the Bank of Japan (BoJ), most likely in January 2026. Political flux in Tokyo could bring fiscal softening, but the baseline remains one of gradual normalisation.
Within EM, the bank argues the policy fog has thinned enough for flows to re-engage. Dollar weakness is historically correlated with stronger EM currencies and equity inflows, while valuations remain attractive versus developed markets. It notes EM equities are on their best run since 2016–2017 in terms of forward EPS momentum, even as the US and Europe exhibit uneven sectoral trends.
IG credit, utilities and hedged alternatives
Translating the top-down into allocations, Lombard Odier emphasises quality income and selective cyclical equity risk. The bank prefers investment-grade (IG) corporate bonds in developed markets, arguing that the yield on offer compensates better for risk than high-yield bonds as growth cools and policy uncertainty remains high. In Europe, it prefers German, French, Spanish, Italian, and UK issuers; in EM, it favours corporates over sovereigns in US dollars; and favours five-year maturities across most currencies.
The “five-year area” on the curve is also where Strobaek suggests investors focus on. “You should be more on the shorter-term duration side, because shorter rates are coming down probably faster than longer rates,” he says, adding that the steepening now is negative given the inflation outlook.
On equities, communication services remain a preferred sectoral expression of the AI monetisation tailwind. At the same time, utilities are added to complement a bias towards cyclicals, as data centre-driven power demand and electrification re-rate parts of the group. The bank’s Q2 earnings review notes the heavy lifting by tech and communication services, upside surprises from selected industrials and financials, and pockets of weakness in materials, healthcare and consumer staples.
Hedge funds also earn a place in the mix. With dispersion high and volatility liable to spike around data and policy headlines, Lombard Odier sees market-neutral strategies as useful ballast. Real estate benefits from falling policy rates, particularly in Switzerland and the eurozone, where rates are lowest among major economies, though tariff-induced growth frictions require selectivity. Gold’s strategic role is reiterated as prices consolidate near highs despite geopolitical flare-ups.
The thematic sleeve is anchored to a multipolar world framework that the bank outlined in its 2025 Rethink Investments publication. It expects a distributed capital-expenditure cycle across infrastructure, technology, energy, food and health as countries pursue resilience and autonomy, with China seeking leadership in sustainability technologies and Europe pushing energy independence projects.
This year, Lombard Odier retains six high-conviction themes, with “rethink infrastructure” expected to perform best, followed by “rethink new gen” and “rethink technology”. It shifts “rethink nature” towards water as the most investable nature-linked asset, adds rail mobility in “rethink net zero” to offset slower EV adoption, and stresses that a diversified blend across themes best manages active risk.
The macro base case remains a slower US economy without a recession, with three Fed cuts this year, taking rates to around 3.75% by year-end, and a terminal rate of 3.0% in the next cycle. The ECB is expected to hold at 2% after completing its easing phase. Switzerland, facing a disproportionate tariff hit but with ample fiscal space and high-value export niches, is expected to keep Swiss National Bank rates at 0%. China slows but not enough to derail EM spillovers.
Strobaek adds three watch-items that could accelerate or delay the Fed path: a “very weak” US labour market would force faster cuts, a highly unlikely “miracle drop” in inflation could speed the process, and overt political pressure on the Fed would be unhelpful noise. “The labour market is the key focus,” he says.
Overall, Lombard Odier’s message is consistent: Stay invested, but be surgical. In a world of tariffs and shifting trade blocs, the bank argues that a diversified portfolio anchored in assets and regions that can navigate uncertainty is the correct response.
