Key highlights for this quarter
GLOBAL ECONOMY
Can the global economy avoid a sharp slowdown?
Policy uncertainties from the U.S. have impacted CEO and household confidence, leading to a weaker economic outlook (GTMA P.26-28). We still expect the U.S. economy to avoid a hard recession, as the corporate and household sectors are not over-leveraged. China needs more policy support to keep growth at the 5% target (GTMA P.5 & 6). It will also release the 15th Five-Year Plan that would set its economic course for the coming years.
ASSET ALLOCATION
Can U.S. rate cuts help to boost markets?
A combination of rate cuts and soft landing in the U.S. has historically benefited risk assets over a 12-18 month period (GTMA P.71). However, strong year-to-date gains in global equities could prompt some short-term profit taking. Hence, maintaining a well-diversified portfolio with equities, fixed income and alternative assets is important for risk management and income generation (GTMA P.82 & 88).
FIXED INCOME
Where can investors find value in bonds?
We continue to see a “barbell” approach in government bonds and high yield corporate debt to strike a balance between income generation (from high yield corporate bonds), and hedge against downside surprises in the economy (government bonds) (GTMA P.58 & 59). A weaker U.S. dollar should also provide ongoing momentum to emerging market fixed income.
EQUITIES
Where can investors find opportunities in equities globally?
For near term potential corrections in equities, investors could deploy options-overlay strategies to generate income to offset downside moves. Those investors with cash on the sideline could continue to look at global technology, as the U.S., Asia and China develop their artificial intelligence capabilities (GTMA P.45 & 53). Chinese stocks could also get a boost from the government’s directive on medium-term growth from the 15th Five-Year Plan (GTMA P.46).
ALTERNATIVES
What role do alternative assets play?
Alternative assets play a broad range of roles to enhance portfolio performance. With the risk of higher volatilities in 4Q 2025, hedge funds were able to provide some offset to portfolios. In the longer term, infrastructure and transportation have been consistent income generators, facilitating more diversified supply chains and capturing opportunities arising from increased demand for electricity to power data centers (GTMA P.80).