Article first published in The Business Times on 27 August 2025 here.
The year 2025 has been anything but ordinary. An unprecedented collision of geopolitics, global trade policies, and wildly divergent economic strategies among the major nations has combined to shape a complex financial landscape.
In this context, Lombard Odier’s house view and asset allocation framework serve as vital tools for navigating the challenges and opportunities the year has experienced – and has yet to present.
In this column, I explore the major narratives influencing 2025 and highlight how our insights might guide investors through still-turbulent waters.
US resilience
Despite the tumultuous backdrop of US trade policy, the first half of 2025 concluded with a surprising level of resilience in the US economy.
Economic indicators showed robustness, defying earlier predictions of a tariff-induced downturn. While the first quarter’s growth appeared sluggish, the economy adapted well, with inflation remaining subdued.
US equities rebounded more strongly than what many analysts anticipated, and the government’s budgetary measures did not lead to the feared spike in bond yields.
One significant factor contributing to this resilience was the 90-day pause on tariffs, which prevented the imposition of broad, heavy levies that could have severely impacted the economy. During this period, US companies proactively built their inventories, preparing for potential future tariffs. The variety of price categories also helped mitigate inflationary pressures, allowing the economy to stabilise.
While our outlook does not foresee a recession in the US this year, we anticipate that the implementation of full tariffs on Aug 1 will likely reveal growth-negative effects in Q3. Thus, the positive surprises of Q2 may give way to a less-favourable economic environment in H2, underscoring the need for vigilance and adaptability in investment strategies.
Glean insights from our House View for the second half of 2025 here.
Fixed-income opportunities
Fixed income remains an attractive asset class in the context of slowing growth.
Our focus on investment-grade (IG) corporate bonds is particularly pertinent as many countries face deteriorating government finances.
Year-to-date performance in this segment is around 3.5 per cent, and, while high-yield bonds have also performed well, we believe US dollar-denominated IG bonds offer a more favourable risk-reward profile for multi-asset portfolios.
As we look to H2, we expect IG corporate bonds to continue their positive trajectory.
In Europe, we favour issuers from Germany, France, Spain, Italy and the UK. In emerging markets, our preference remains firmly with corporate bonds over sovereign debt, despite both segments performing within a narrow range of 3.5 to 5 per cent this year.
We advocate for five-year maturities across most currencies to optimise returns while managing risk.
Government bonds also play a critical role in portfolio diversification. We prefer US Treasury inflation protected securities (Tips) and Japanese government bonds (JGBs).
Tips currently offer real yields above 2 per cent, providing a hedge against potential geopolitical scenarios. With the Bank of Japan expected to pause its rate hikes for the remainder of the year, JGBs present an appealing investment opportunity, especially when hedged back into dollars and euros.
While our outlook does not foresee a recession in the US this year, we anticipate that the implementation of full tariffs on Aug 1 will likely reveal growth-negative effects in Q3. Thus, the positive surprises of Q2 may give way to a less-favourable economic environment in H2, underscoring the need for vigilance and adaptability in investment strategies
Equities: A broad perspective
Broad regional diversification is essential, as well as investments aligned with our longer-term thematic strategies. We anticipate that equities will benefit from monetary policy easing amid slowing growth in the coming quarters, along with falling bond yields.
A reasonably solid global earnings outlook, coupled with weak investor sentiment towards 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 materials sector has performed robustly and, despite recent sluggishness, several tailwinds are set to drive continued performance.
For instance, gold miners are benefiting from high prices and improved cost control, while construction materials stocks are experiencing a rally due to renewed commitments to infrastructure projects.
In technology, we maintain our preference for communication services over semiconductors and hardware, as they offer more attractive valuations and greater stability. European semiconductors also remain a focus, projecting medium-term performance despite near-term tariff-induced uncertainties.
Our investment philosophy emphasises quality stocks with strong balance sheets and resilient earnings, which provide a buffer in volatile markets.
Infrastructure and nature
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, especially with the expansion of the Brics group, are directing efforts towards infrastructure development. In developed markets, Germany is prioritising infrastructure spending to close capital expenditure gaps.
Investing in companies along the value chain – from materials to infrastructure operators – positions us to benefit from rising infrastructure spending.
Additionally, our “Rethink Nature” theme focuses on the urgent challenges facing biodiversity and water availability. Public awareness and government action create a favourable environment for companies in water technology and treatment, signifying a promising investment opportunity.
Alternatives: real estate and hedge funds
In a low-yielding market, real estate investments emerge as an attractive alternative source of income. With declining central bank rates, particularly in Switzerland and the eurozone, real estate can provide returns that outperform traditional fixed-income instruments.
We also view hedge funds and private assets as valuable components of a diversified investment universe. Market-neutral, long-short, and event-driven strategies offer additional flexibility, particularly in multi-asset portfolios. For eligible investors, private equity may enhance the opportunity set, especially in light of trade barriers.
As we approach the end of the third quarter, we encourage investors to stay informed and engaged. In this dynamic environment, the ability to pivot and seize opportunities will define successful investment strategies for the remainder of 2025
Currency and portfolio risk management
As we reassess currency strategies, our preference has shifted towards currencies with current account surpluses and high-yielding emerging-market currencies. We anticipate that currencies, particularly the Korean won and Australian dollar, will perform better than major foreign-exchange (FX) currencies in the coming months.
Recent recoveries in Asian currencies after tariff concerns have shown resilience, and developments such as a more stable dollar-yuan and potential trade deals with FX clauses are supportive.
In light of the current economic climate, employing effective portfolio risk management is crucial. As central banks cut their policy rates – we anticipate three cuts of 25 basis points each this year by the US Federal Reserve – the need for capital deployment becomes essential for adequate portfolio diversification.
This environment presents an opportunity to use cash holdings and market dislocations to strategically allocate capital.
By remaining adaptable and vigilant, we can effectively respond to the evolving economic landscape characterised by trade policy uncertainties and geopolitical tensions. The strength of our investment convictions – coupled with a focus on quality, diversification and strategic positioning – will be crucial for achieving sustained growth.
As we approach the end of the third quarter, we encourage investors to stay informed and engaged. In this dynamic environment, the ability to pivot and seize opportunities will define successful investment strategies for the remainder of 2025.
Source: The Business Times © SPH Media Limited. Permission required for reproduction.
Revisit investment insights from Michael Strobaek, our Global CIO here.
