Asset Allocation Outlook

Key arguments

• Global equities: supportive fundamentals but less clear macro/geopolitical environment warrant measured overweight.
• EM equities: preferred region due to AI supply chain exposure and favorable earnings-growth differential.
• Global duration: high starting yields and attractive carry support modest overweight; expect yields to move lower over time.
• US rates: overweight vs Germany; data shows stabilization not re-acceleration; fiscal/issuance risks at long end.
• Europe ex-UK rates: underweight due to Germany and France fiscal/political issues.
• UK rates: overweight vs France; gilt yields already reflect fiscal uncertainty; UK clearer path to stabilization.
• Japan rates: very modest overweight; repricing in yields compensates for policy uncertainties.
• Oil: near-term supply constraints and geopolitical risks could support prices, but medium-term surplus limits upside.

Corresponding source evidence

1. We maintain our modest overweight stance on global equities. The fundamental backdrop remains supportive, but strong market performance so far this year and a less clear-cut macroeconomic and geopolitical environment argue for a positive but measured stance. · 3-12 months
2. Our neutral stance on US equities remains unchanged. Questions around the durability of the AI investment cycle have increased, particularly given concerns about circular financing arrangements and reliance on a relatively small number of participants. Higher prospective issuance could also temper returns over the coming 12 months. · 12 months
3. We moved to a neutral stance on Europe ex-UK equities. The region delivered a resilient earnings season, while the macroeconomic backdrop is showing signs of improvement. Together, these developments have reduced the downside risks that previously supported our underweight stance. However, structural challenges and valuation considerations continue to limit the upside. · 3-12 months