Prelude To Next Rally
Global stocks have performed well since Standard Chartered's H2 2025 Outlook, with global stocks climbing 6.4%. Asia ex-Japan equities have notably outperformed US peers, rising 8.6% compared to 6.5%. Other risky assets, such as high-yield bonds, have also seen positive performance, while the US dollar has shown volatility and bond yields and gold have remained range-bound.
Market Headwinds on the Horizon
Standard Chartered points to several 'scattered clouds' that could introduce market jitters: US Trade Policy: US policymakers have threatened to reintroduce higher tariffs on major markets starting August 1. While some trade deals, like the recent one with Japan, have been concluded, the focus remains on the nature of agreements with key partners such as the EU, South Korea, and India. The Japan deal, which set a 15% baseline tariff, suggests a potentially higher general tariff rate than previously estimated.
Seasonal Volatility: The coming months, particularly September, are historically known for increased volatility in global equity markets. This 'September Effect' is often attributed to factors like investors returning from summer breaks, tax-loss harvesting, and institutional portfolio adjustments at the end of the third quarter.
These risks are expected to shift market attention back to the Federal Reserve and crucial US economic data. Concerns about the inflationary impact of potential new tariffs could surface, although it's encouraging that long-term market inflation expectations remain subdued. Investors will also closely monitor US labor market data to assess whether the economy remains on a 'soft-landing' path. Standard Chartered believes that any growth slowdown would create room for the Fed to implement a rate cut in September.
Opportunities Amidst Volatility
Despite the short-term headwinds, Standard Chartered identifies opportunities for investors: USD Short Squeeze: The US dollar is poised for a brief rebound due to what the bank identifies as one-sided investor positioning. Standard Chartered recommends using such a rebound to add to assets that typically benefit from a weaker USD in the long run. This includes a diversified equity allocation with a tilt towards Asia ex-Japan equities and Emerging Market (EM) local bonds.
USD Bonds: Temporary rebounds in bond yields should be viewed as opportunities to add to USD bonds. However, the bank advises managing volatility by avoiding excessively long maturities, maintaining a 5-7-year maturity profile.
Gold: Gold continues to be an attractive core holding within portfolios, serving as a reliable diversifier.
Standard Chartered also highlights the 'Trump put' factor, a theory suggesting that the US President may ease his hawkish trade stance if markets react negatively to his policies, potentially providing a floor for market downside.
The bank's long-term quantitative models have turned more bullish, reinforcing their recommendation to leverage any market pullbacks as strategic entry points for increasing equity exposure. Related
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