Asset Allocation Outlook

We hold a modest overweight stance on US equities. In our view, the US remains dominant in AI and is less sensitive to higher energy prices than import‑dependent economies. While rising energy costs may compress margins in some sectors, we still expect a positive earnings trajectory. Moreover, the recent de‑rating of mega‑cap technology stocks has brought valuations in this key market segment back to more attractive levels, reinforcing our positive lean towards US equities.

We keep a modest underweight view on Europe ex‑UK equities. Europe’s outperformance versus the US has increasingly diverged from European companies’ relative earnings, at a time when the region faces additional headwinds, including competition from China and a stronger euro. Given that backdrop and the likelihood of higher energy prices stemming from the escalating conflict in the Middle East, we see the balance of risks skewed against Europe and remain comfortable with our underweight stance.

We maintain our modest underweight stance on UK equities. Like Europe, the UK faces a weaker earnings outlook than other regions, and we therefore continue to view it as an appropriate source for funding our stance in areas such as emerging markets (EMs), where we see greater relative upside potential.

We remain neutral in our view on Japanese equities. We note that the supportive domestic policy backdrop stays intact, including the potential for fiscal measures to underpin growth. While we still see scope for positive excess returns in Japan, we are comfortable staying neutral for now. However, we would look to re‑engage should markets provide an attractive opportunity to add exposure.

We continue to hold an overweight stance on EM equities, as we think our underlying thesis remains intact. Outside of the US, many EM economies, especially in Asia, are central to the AI supply chain in the field of semiconductors and memory. We expect that demand will stay strong throughout 2027 and at this stage do not see meaningful signs of a potential slowdown. China’s resilience to date has also stood out: significant energy reserves and a more diversified supply have helped limit the fallout of the conflict so far, while policymakers retain levers to smooth the impact. Moreover, recent activity data has surprised on the upside.

We remain neutral in our view on US rates, having moved away from the modest underweight stance we held earlier in March. Following the escalation of the US-Iran conflict, markets have repriced their expectations of US rate cuts, with policy now expected to remain on hold. With no clear directional catalyst, we still anticipate yields trading in a broad range through 2026. In our opinion, this limits the scope for high‑conviction tactical positioning and reinforces our neutral stance.

We maintain our neutral view on European rates, having closed the (March) intra‑month modest overweight stance we held on German rates versus the US. While we are neutral at present, the repricing that has taken place since the start of the conflict has left eurozone yields at more attractive valuations. In our view, markets have likely overreacted and we would look to re‑engage as we see a clearer path towards de-escalation emerging.

We’ve downgraded our stance on Japanese rates to an underweight. Inflation and fiscal risks are more pronounced in Japan, and recent policy signaling hints to a willingness to use fiscal tools should the conflict escalate further and its economic impact deepen. Yet both the Bank of Japan’s reaction function and the moves in inflation and real yields have been more muted than in other regions, so we are watching closely developments ahead.

We’ve shifted our stance on investment grade credit to a modest overweight, with a focus on European credit. In our view, euro credit fundamentals are stronger than in the US, with healthier debt service and leverage metrics. In addition, the opportunity set is more weighted towards asset heavy sectors rather than software and AI related leveraged borrowers.

We’ve moved to a modest overweight stance on European high yield. With spreads having widened from very tight levels, we have taken the opportunity to upgrade our view marginally, which we see as a measured step back into risk within multi asset portfolios, as current spread levels provide a degree of cushion against further widening.

We remain neutral on EM debt. While we’ve begun to re‑engage selectively through European investment‑grade and high‑yield credit, we are maintaining a more cautious stance towards EM debt and prefer to stay on the sidelines until valuations offer a more compelling entry point.