The article was first published in The Business Times on 23 August 2025.
Recently, I had the pleasure of crewing on a friend’s yacht during a regatta – a series of races – in Hong Kong’s fragrant harbour. As a newbie, it was a learning experience that was, in equal parts, complex and simple.
What surprised me was the idea that pre-race planning was as – if not more – important than the race itself. For example, forecasting likely weather conditions and selecting the appropriate sail plan; researching the course and charting the optimum route; identifying the most qualified crew and deciding the winning race strategy with them.
Once underway, you trust the process and keep course corrections to an absolute minimum; anything but the most necessary changes typically cost time and (prize) money. Similarly, competitor yachts are all but ignored, with the focus on exclusively one’s own progress and performance.
A collision of geopolitics, global trade policies, and divergent economic strategies among major nations has created a complex financial landscape. In such turbulence, Lombard Odier's House view and asset allocation framework are essential tools for navigating the challenges and opportunities this year presents
And so it is with investing. Meticulous preparation, strategic planning, and timely execution are vital. And a preference to avoid (unnecessary) interventions aligns with Lombard Odier’s view that strategic – rather than tactical – allocation is the preferred and pre-eminent driver of a portfolio’s returns. In simple terms, a strategic “straight line” is always more effective (and substantially cost-efficient) than a series of tactical “zigzags”.
That said, investing in 2025 has been anything but simple. A collision of geopolitics, global trade policies and divergent economic strategies among major nations has created a complex financial landscape. In the face of such turbulence, I would suggest that Lombard Odier’s house view and asset allocation framework are essential tools for navigating the challenges and opportunities this year presents.
Read more about how Trump’s policies impact the investment landscape.
Stormy seas
Despite the tumultuous backdrop of US trade policy, the first half of 2025 concluded with surprising resilience in the US economy. Economic indicators showed strength, defying predictions of a downturn due to tariffs. While the first quarter’s growth appeared sluggish, the economy adapted well, with inflation remaining subdued. US equities rebounded more strongly than anticipated, and government budgetary measures did not lead to the feared spike in bond yields.
A significant factor in this resilience was the 90-day pause on tariffs, which prevented broad tariffs that could have severely impacted the economy. During this pause, US companies proactively built their inventories in anticipation of potential future tariffs. Varied price categories helped mitigate inflationary pressures, allowing the economy to stabilise.
While we do not foresee a recession in the US this year, we anticipate that the implementation of full tariffs on Aug 1 will likely reveal negative growth effects in the third quarter. Thus, the positive surprises of the second quarter may give way to a less favourable environment later in the year, underscoring the need for vigilance in investment strategies.
Read more about our investment insights and convictions from Michael Strobaek, our Global CIO.
Asset allocation
Fixed income remains an attractive asset class amid slowing growth. Our focus on investment-grade (IG) corporate bonds is particularly relevant, especially as many countries face deteriorating government finances. While high-yield bonds have also performed well, we believe US dollar-denominated IG offers a more favourable risk-reward profile for multi-asset portfolios. We advocate for five-year maturities across most currencies to optimise returns while managing risk.
In emerging markets, we are adding more to our hard currency debt allocation as stable US dollar funding conditions support better relative performance for the segment. We prefer corporate bonds over sovereign debt, despite both segments performing in a narrow range of 3.5 to 5.0 per cent this year.
From an equity perspective, regional diversification is essential, along with investments aligned with our longer-term thematic strategies. We expect equities to benefit from monetary policy easing amid slowing growth in the coming quarters, along with falling bond yields. A solid global earnings outlook, coupled with improving investor sentiment toward equities, should create an environment ripe for positive surprises that drive up risk asset valuations.
Our sector preferences highlight the importance of quality stocks and resilient sectors. Communication services and materials remain at the forefront of our investment strategy. The global information technology sector has performed robustly, and several tailwinds are set to drive continued performance. We also adopt a barbell strategy of combining these cyclical exposures with a somewhat contrarian allocation to the utilities sector that seems to be best positioned for rising AI-related power demand and US rate cuts.
Our focus on quality, diversification, and strategic positioning is vital for sustained growth. As we approach the fourth quarter, we encourage investors to stay informed and engaged – the ability to pivot and seize opportunities will define success for the rest of 2025
In technology, we prefer communication services over semiconductors and hardware due to more attractive valuations and greater stability. European semiconductors remain a focus, projecting medium-term performance despite near-term tariff-induced uncertainties. Our investment philosophy emphasises quality stocks with strong balance sheets, providing a buffer in volatile markets.
Lombard Odier’s long-term thematic convictions guide our investment approach, particularly in infrastructure and nature. We expect the infrastructure spending cycle to accelerate in a multipolar world. Emerging markets, particularly with the expansion of the Brics group, are directing efforts towards infrastructure development. In developed markets, Germany prioritises infrastructure spending to close capital expenditure gaps.
From an alternatives perspective, hedge funds and private assets remain as valuable components of a diversified investment universe. Market-neutral, long-short, and event-driven strategies offer additional flexibility in multi-asset portfolios. For eligible investors, private equity may enhance the opportunity set, especially amid trade barriers.
As we reassess currency strategies, our preference has shifted towards currencies with current account surpluses and high-yielding emerging market currencies. We anticipate that Asian currencies, particularly the Korean won and Australian dollar, will perform better than major foreign exchange currencies in the coming months.
In the current economic climate, effective portfolio risk management is crucial. As central banks cut policy rates, capital deployment becomes essential for optimal positioning. Lombard Odier’s asset allocation framework offers valuable guidance for navigating 2025’s trade policy uncertainties and geopolitical tensions. Our focus on quality, diversification and strategic positioning is vital for sustained growth.
As we approach the fourth quarter, we encourage investors to stay informed and engaged – the ability to pivot and seize opportunities will define success for the rest of 2025.
Source: The Business Times © SPH Media Limited. Permission required for reproduction.
