Ride the policy noise and shifts

rewiring of the global economy is forcing investors and policymakers to exercise caution. Uncertain policymaking is causing significant market volatility. Nevertheless, major economies have demonstrated resilience thus far. 

Image
Monica Defend

Monica Defend

Head of Amundi Investment Institute

Despite unpredictable policymaking, business resilience, and the reorganisation of global trade and financial systems, the expected rate cuts from central banks will create opportunities in global equities. We are focusing on themes such as European defence spending, US deregulation, corporate governance reform in Japan, and the ‘Make in India’ initiative.

Monica Defend, Head of Amundi Investment Institute

A glimpse into the rest of the year

Economic growth around the world will depend on the path of tariffs following the 90-day pause and the implementation of Trump’s policies. Ongoing policy uncertainty and its impact on domestic and investor confidence remain key risks to monitor.

 

Mind the sequencing

 

 

Main and alternative scenarios
Source: Amundi Investment Institute, IMF, Bloomberg. The table shows reference projections based on information available as of 10 June of 2025. Assumptions on tariffs as of 10 June of 2025, at face value, tariffs are 10% universal, 30% on China (20% Fentanyl and 10% reciprocal); under the section 232, 25% sectoral tariffs on Auto & Auto Parts, 50% on Steel and Aluminum (since the 4th of June). Sectoral tariffs on Canada and Mexico only for non-USMCA-compliant imports.

What should investors keep a close eye on?

Image
Vincent Mortier

Vincent Mortier

Group CIO

Government bond markets are being rattled by the threat of higher debt and rising inflation fears, keeping volatility high. Investors are likely to demand greater compensation for long-dated bonds, making yields appealing. The name of the game will be diversifying away from the US and into European and emerging market bonds.

Vincent Mortier, Group CIO
Investment themes

Factors to Monitor

Credit Stress

Due to policy lag effects leading to defaults

Real Estate Stress

On commercial banks and consumers

Liquidity Risk

Amid rising complexity, deregulation, and strong bank and non-bank linkages

Volatility spikes

For valuation reset and/or carry trade reversal

Looking ahead, what are the key convictions for H2 2025?

We expect US real GDP growth to slow from nearly 3% in 2023–24 to 1.6% in 2025, largely due to weakened private demand. Higher tariffs will raise prices, dampening consumer sentiment and spending, while uncertainty will weigh on investment. Although fiscal measures and deregulation may provide some relief, the impact is likely to be limited, with average tariffs around 15% (as per our base case) leading to economic losses and a temporary resurgence in inflation. Amid the growth slowdown, the Fed is expected to cut rates three times in H2.

We are now in a more contentious geopolitical environment, with the US administration contributing to rising tensions through tariffs and reduced commitments to European security. This could further unify Europe, with leaders recognising the benefits of collective negotiation as they seek to diversify trading partners through new trade agreements. The US–China relationship is set to deteriorate further, though both nations will seek to avoid escalation. In this environment, diversification away from US assets is set to continue, favouring European assets in particular.

Despite the sub-par growth outlook, we do not anticipate an earnings recession, as businesses show resilience. This, coupled with the Fed's anticipated rate cuts, supports a mildly constructive asset allocation with inflation protection. We favour global equities with a focus on valuations and pricing power, along with commodities, gold, and hedges against growth and inflation risks stemming from a world of geopolitical uncertainty. Infrastructure investments can offer stable cash flows. Currency diversification will be crucial amid shifting correlations between the USD, equities, and bonds.

Investors will demand a higher premium for US Treasuries, amid uncertainty on trade policies, rising public debt, and substantial bond supply. In developed markets, long-term yields will remain under pressure. Central Banks cutting rates will continue to support short-dated bonds, driving yield curve steepening. Investors will seek diversification across markets, favouring Europe and EM debt. Continue to play quality credit, with a preference for euro investment grade (financial and subordinated credit).
 

Equities may generate low single-digit returns in the second half, but rotations will continue. Europe’s appeal is likely to become a structural theme, favouring also small- and mid-caps, where valuations remain highly attractive. Globally, sector selection will be key. We favour domestic and service-orientated sectors to reduce the risk from tariffs, with a focus on themes such as US deregulation, European defence and infrastructure, and the ongoing Tokyo Stock Exchange reform, which is generating a more investor-friendly environment. 

Emerging market equities will be favoured in H2 2025, driven by recovering macro momentum and stabilising inflation. As US exceptionalism fades, India and ASEAN are emerging as key beneficiaries of the global supply chain rerouting. India's ‘Make in India’ initiative is attracting multinational corporations, particularly in defence and IT. With a focus on domestically-orientated sectors, these markets are not just manufacturing hubs but dynamic growth engines, poised to capitalise on structural shifts and expanding consumer bases.
 

Extra selectivity is required given the surge of capital being invested in these segments.  Overall, a challenging geo-economic backdrop will boost diversification through private assets, benefitting resilient domestic stories. Private debt and infrastructure are expected to remain the most attractive. Private debt may benefit from strong direct lending and fundraising, while infrastructure will attract investors seeking inflation protection. 

Get the full picture

Discover more: Why is it time for Income?

 

This document is not intended as an offer or solicitation with respect to the purchase or sale of securities, including shares or units of funds. All views expressed and/or reference to companies cannot be construed as a recommendation by Amundi.  Opinions and estimates may be changed without notice.  To the extent permitted by applicable law, rules, codes and guidelines, Amundi and its related entities accept no liability whatsoever whether direct or indirect that may arise from the use of information contained in this document.

This document is for distribution solely to persons permitted to receive it and to persons in jurisdictions who may receive it without breaching applicable legal or regulatory requirements. This document has not been reviewed by the Securities and Futures Commission in Hong Kong.

This document is prepared for information only and does not have any regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Any person considering an investment should seek independent advice on the suitability or otherwise of the particular investment.  Investors should not only base on this document alone to make investment decisions.

Investment involves risk. The past performance information of the market, manager and investments and any forecasts on the economy, stock market, bond market or the economic trends of the markets are not indicative of future performance.  Investment returns not denominated in HKD or USD is exposed to exchange rate fluctuations. The value of an investment may go down or up.

This document is not intended for citizens or residents of the United States of America or to any «U.S. Person» , as this term is defined in SEC Regulation S under the U.S. Securities Act of 1933.