House View Q2 2025: Vibe shift

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