House View Q2 2025: Vibe shift

31/03/2025

Our view of global markets

Heads spinning, markets rotating

Early 2025 has brought a switch in sentiment. Facing stark geopolitical realities, Europe is adjusting fiscal policy in a way that should drive structural growth. This pivot – a major moment for economics and politics – has sparked a broad-based European rally.
We think the rotation into European markets has, so far, barely made a dent in large, established US overweight positions and it is not too late to participate.
In the US, tariffs and uncertainty about the economy and government policy are weighing on growth. Some actions of the new administration could undermine the US as a safe haven.
Risks in this environment include higher US inflation, slowing growth momentum globally, and the potential for a full-blown and protracted trade war. But we consider it a compelling period for active management.
We are cautiously optimistic on select equity markets in an environment where "air pockets" of temporary turbulence are likely. Well-anchored portfolios across geographies are key. Consider a long Europe position as well as opportunities in China and India.
This shift in sentiment has implications for sovereign bonds. Our highest conviction is in UK Gilts. Overall, we are slightly long duration in the UK and euro area. We think investment grade spreads are supported by carry and momentum.

Chart of the quarter

Reversal in fortunes
With Donald Trump’s return to the White House, many investors were hoping for a repeat of the US equities rally of the early days of his first term as president in 2017. Instead, US markets have fallen back, while European equities have surged. Note how the Mag 7 group of US tech stocks have collectively ceded their post-election gains.

Source: LSEG Datastream, AllianzGI Economics & Strategy. Data as at 12 March 2025

Short on time? Download the summary of our House View Q2.

Asset class convictions

Overall, we have a constructive outlook on equities while being tactical amid the risk of "air pockets". We think the rally in European equities has further to go but, given the market volatility and uncertainty, we would also look to other global markets as part of well-anchored portfolios across geographies.
The reassertion of “European sovereignty” – and increased spending commitments – could boost several sectors. These will likely include cybersecurity and AI as well as defence.
European investors are currently underweight construction. But rapid growth in global data centres is structurally positive for the sector; it could also benefit from any post-ceasefire reconstruction in Ukraine.
With a USD 4 trillion market capitalisation, India offers a high sectoral diversification compared with other emerging markets. Valuations may offer a compelling margin of safety.
We think China is attractively valued and getting noticed for its technology focus (eg, embodied AI and humanoid robots). Given the potentially weaker trade outlook for China this year, the government is set to promote consumption that should support growth.

We expect the yield curve to steepen in Europe, reflecting big defence-related spending plans in Germany and elsewhere that will take time to implement. Across the Atlantic, fears of a slowdown also point to US yield curve steepening. In this environment, we prefer to trade tactically around structural positions.
The outlook for Gilts is promising based on valuations and market expectations of central bank policy. In the UK, unlike in the euro area or Canada, likely future rate cuts are not fully priced in. On recent Gilts outperformance we took partial profit on this theme.
Consider going long on the Japanese yen. The Bank of Japan is under ongoing pressure to raise rates to more “normal” levels to tackle inflation. For that reason, expect Japan’s yield curve to flatten.
Don’t chase beta in credit markets. With interest rate volatility expected, the environment calls for a selective approach involving bottom-up and single-credit analysis.
Emerging markets are showing resilience in the face of market volatility, indicating value in a selective approach to emerging market debt.

We remain selectively constructive on certain equity markets as headwinds grow and tariffs weigh on market sentiment. Having cut our US exposure, European equities are our top pick, buoyed by momentum, attractive valuations, increased fiscal spending and improving sentiment.
Weaker inflation in Europe than in the US leads us to favour European government bonds over US Treasuries. Although the scale of planned fiscal packages is still be finalised, we expect higher yields to persist in an environment of increased volatility and a decoupling of major yield curves.
Our preferred currency is the Japanese yen. We think conditions for the currency are supported by the Bank of Japan’s policy stance – it is late in its cycle of interest rate rises. The yen could regain its safe haven status, especially as Japanese local bonds become increasingly attractive.
In commodities, gold remains our highest conviction call, driven by robust momentum and its role as a hedge against geopolitical risks. In our view, gold remains a useful diversifier in multi-asset portfolios.

Dive deeper into our House View analysis

Our latest thinking on macroeconomics and markets, plus high-conviction ideas from our asset class CIOs.

Download our House View Q2 2025 (full version)

Our full House View includes comprehensive analysis and proprietary data on investment markets.

Download our Snapshot Q2 2025

This is a summary of our House View Q2 2025

Disclaimer

Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.

The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. We assume no obligation to update any forward-looking statement.

The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.
This material has not been reviewed by any regulatory authorities. In mainland China, it is for Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations and is for information purpose only. This document does not constitute a public offer by virtue of Act Number 26.831 of the Argentine Republic and General Resolution No. 622/2013 of the NSC. This communication's sole purpose is to inform and does not under any circumstance constitute promotion or publicity of Allianz Global Investors products and/or services in Colombia or to Colombian residents pursuant to part 4 of Decree 2555 of 2010. This communication does not in any way aim to directly or indirectly initiate the purchase of a product or the provision of a service offered by Allianz Global Investors. Via reception of this document, each resident in Colombia acknowledges and accepts to have contacted Allianz Global Investors via their own initiative and that the communication under no circumstances does not arise from any promotional or marketing activities carried out by Allianz Global Investors. Colombian residents accept that accessing any type of social network page of Allianz Global Investors is done under their own responsibility and initiative and are aware that they may access specific information on the products and services of Allianz Global Investors. This communication is strictly private and confidential and may not be reproduced, except for the case of explicit permission by Allianz Global Investors. This communication does not constitute a public offer of securities in Colombia pursuant to the public offer regulation set forth in Decree 2555 of 2010. This communication and the information provided herein should not be considered a solicitation or an offer by Allianz Global Investors or its affiliates to provide any financial products in Brazil, Panama, Peru, and Uruguay. In Australia, this material is presented by Allianz Global Investors Asia Pacific Limited (“AllianzGI AP”) and is intended for the use of investment consultants and other institutional /professional investors only, and is not directed to the public or individual retail investors. AllianzGI AP is not licensed to provide financial services to retail clients in Australia. AllianzGI AP is exempt from the requirement to hold an Australian Foreign Financial Service License under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order (CO 03/1103) with respect to the provision of financial services to wholesale clients only. AllianzGI AP is licensed and regulated by Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws.

This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG; Allianz Global Investors UK Limited, authorized and regulated by the Financial Conduct Authority; in HK, by Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; in Singapore, by Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; in Japan, by Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424], Member of Japan Investment Advisers Association, the Investment Trust Association, Japan and Type II Financial Instruments Firms Association; in Taiwan, by Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan; and in Indonesia, by PT. Allianz Global Investors Asset Management Indonesia licensed by Indonesia Financial Services Authority (OJK).

4340421

House View archives

House View Q1 2025: Fresh thinking

We focus on Donald Trump’s return to the White House as a game-changer for the US economy and markets. Fresh thinking and broader diversification are advisable as economies diverge in growth, inflation and interest rates.

Discover more

House View Q4 2024: Shifting gears

What a watershed moment means for investors.

Discover more

House View Q3 2024: Act on volatility

Even with political risks on the radar, this is not a time to sit on the sidelines.

Discover more

Recent insights