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Top Questions from our Clients - May 2025
May 9, 2025
The “Top Questions from our Clients” publication is a monthly periodical that posits the most important questions, answers, and portfolio implications curated from across different regions. The May edition addresses the below topics:
- Question 1: Can traditional safe havens like gold, CHF and JPY rise further given they have already rallied? We have seen a substantial rise in gold prices in the recent past, fueled by heightened geopolitical uncertainty and high interest from both governments and investors. The yellow metal is considered the most pure-play safe haven and as uncertainties are likely to persist, we continue to hold a tactical overweight on gold. Increased volatility and USD weakness have also pushed safe haven currencies like CHF and JPY higher. But as real CHF is near the top of the 35-year range of the REER, while JPY seems relatively rightly valued, we have a relative preference on JPY while remaining neutral on CHF
- Question 2: Has the US become ‘un-investable,’ and can USD lose its leadership in currency markets? No and No. The US still has the deepest capital markets, is a hub for tech innovation and has a robust legal system that protects IP. Also, the agenda to lower taxes for households and corporates, and deregulation should be supportive of growth. We believe once there is more clarity on the trade and fiscal policy, and the Fed restarts its easing cycle, investors should return to the US. USD’s dominance as a reserve currency should remain as there is currently no viable alternative. But during the current uncertain times, trade with the US may fall, which can reduce USD transactions, and cause some outflow from USD. But longer-term fundamentals around liquidity should help the green back keep its dominant role as the reserve currency
- Question 3: What is our shorter-term view on fixed income? Throughout this year, we gradually took opportunities of yield uptick to extend our duration across DM sovereign (ex-Japan) bonds. Looking forward, we could see further rate cuts and lower yields across the curve, raising the appeal of bonds as a diversification vehicle and as a hedge against growth concerns. We look for stronger price returns as yields drop and prefer the longer end of the sovereign bond curves while remaining neutral on global credit. In the next 6-12 months, we remain neutral across sovereign, credit markets and credit grades. We prefer European and UK IG along with core Eurozone debt and UK Gilts with 7-10yr duration while also liking EM hard currency debt (3-5yrs duration)
- Question 4: Why are we still constructive on Chinese equities amid tariff escalations? There are various factors supporting our mild overweight positioning on Chinese equities. 1) Chinese markets are domestically driven and have very limited goods sales exposure to the US. 2) Chinese government has pledged continued fiscal and monetary policy support to aid tech innovation, consumption, and trade. 3) DeepSeek-driven AI innovation and investment boom should offset some lag from tariffs. 4) MSCI China is trading at a steep valuation discount compared to its peers. Hence, we maintain our view and focus on opportunities around AI enablers and adopters through our “China’s Innovation Champions” theme. We also like domestically driven consumption, financial and industrial sectors as well as quality SOEs paying high dividends
- Question 5: Does the recent tussle with President Trump suggest Jerome Powell can be replaced? Despite the public standoff, we don’t think the Fed Chair will step down from his role. The Fed is considered an independent institution, and any government interference to influence its autonomy would likely trigger serious political and market backlash and could result in loss of Fed’s credibility and heightened volatility. The public struggle between the fiscal and monetary policies is not new but President Trump has intensified the conflict through the dramatic shift in fiscal and trade policies. The Fed should restart its easing cycle soon, which should support growth, and this rift should then cool down. For now, we remain neutral on US equities and believe long-term fundamentals around tech innovation and deregulation still hold true for the US
- Question 6: Are FX or credit markets showing any signs of recession or financial crisis? We do not believe financial conditions across FX and credit markets point to an imminent deep recession. While few financial condition indicators had shot up briefly following the Liberation Day announcements, global financial systems remained mostly resilient, with conditions bouncing back after the announcement of 90-day reciprocal tariff pause. Credit spreads and bond volatility ratios have gradually retreated almost half their high and are far from concerning levels. Currency markets have also been volatile with USD losing some of its safe haven characteristics, hence increased flows into other risk-off currencies have been seen. But it has somewhat stabilised and haven’t reached alarming levels yet. With policy uncertainty expected to remain, we take a multi-asset approach with active management strategy for fixed income. We further diversify into gold, private assets and hedge funds, where applicable