This coming quarter will provide more clarity on the impact of US tariffs. We have become more confident that global cost pressures can be contained and growth will remain resilient. However, with the US market priced for perfection, there is little room for surprises.
Chong Jiun Yeh, Group Chief Investment Officer
Corporates: Surprising resilience
Despite trade conflicts ignited by the US, the global economy has shown surprising resilience. In particular, we note that corporate profits around the world remain solid, a pattern reminiscent of other recent crises, including the Covid pandemic and aggressive interest rate hikes. In the US, the tariff crisis looks unlikely to result in widespread layoffs. Companies typically consider workforce reductions only when margins and profitability begin to deteriorate.
Inflation: Too early to celebrate
That said, we think it is premature to completely rule out recession and stagflation risks. We remain watchful of a delay in the negative effects of tariffs, given various pauses in implementation. Also, companies themselves have sought to temporarily absorb the higher costs. This means that the full impact of tariffs on US consumption patterns may not yet have become evident.
Asset allocation: Intentionally neutral
As such, we continue to take a neutral position across asset classes. This neutrality is strategic, rather than reflecting a lack of conviction. This coming quarter, we have raised our probability of sustained growth from 40 to 50 percent, and lowered our probability of a recession or stagflation-like conditions from 30 to 25 percent each. We believe a neutral positioning is the most resilient and offers the best chance of achieving positive returns across a range of outcomes.
Source: UOBAM, 4 Sep 2025. Note: *3-6 months horizon. The weights are relative to the appropriate benchmark(s), arrows show change from last quarter
Equities: Less US-centric
The current strength of US equity markets reminds us of the mid-1990s, when innovation themes helped valuations climb to uncomfortable levels. Then, as now, there were good reasons to be cautious of the growing risks. But we also need to be wary of pulling the plug too early. Equity markets had several more years of double-digit returns before peaking in early 2000. We think that the current environment still offers equity upside but warrants a more diversified positioning. We would point in particular to the opportunities present in Asia.
Source: UOBAM, 4 Sep 2025. Note: *3-6 months horizon. The weights are relative to the appropriate benchmark(s), arrows show change from last quarter
Bonds: Neutral duration and credit
The Fed’s easing cycle has resumed. After last week’s 25 bps cut, the market is now pricing in another one or two cuts before the year ends. Given our base case that developed market economies will remain resilient and all-in yields will stay relatively high, we think this continues to be a good environment to hold bonds for carry. However, we worry that bond markets may be underestimating the potential for higher inflation. As such, we remain neutral on both credit and duration, with 10-year US Treasury yields expected to trade between 4.0 to 4.5 percent.
Source: UOBAM, 4 Sep 2025. Note: *3-6 months horizon. The weights are relative to the appropriate benchmark(s), arrows show change from last quarter.
Read the full 4Q25 Quarterly Investment Strategy report here.
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