Note: Any reference to portfolio positioning relates to our flagship core discretionary portfolios. Clients invested in other strategies, or in bespoke and advisory portfolios, should consult their Client Advisor.
What you need to know
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We continue to moderately prefer equities over bonds. In our view, earnings remain solid and the long-term investment cycle – especially from AI, technology and capital expenditure more generally – is supportive.
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We’re realising profits from our overweight in Japanese equities and reallocating to emerging market equities. This position has worked well, but we now see less upside after the rally. We think dollar weakness, valuations, earnings and stabilisation in China make emerging markets a more compelling opportunity.
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We’re reducing our exposure to the US dollar again. We believe the currency is likely to weaken further, driven by US Federal Reserve (Fed) rate cuts, high debt levels and growing concerns about institutional independence.
Daniele Antonucci
Daniele Antonucci
Daniele Antonucci is a managing director, co-head of investment and chief investment officer at Quintet Private Bank. Based in Luxembourg, he jointly chairs the investment committee, owning decision-making and performance outcomes. As head of research, Daniele oversees the investment strategy feeding into portfolios and the teams of specialists across asset classes and solutions, ranging from macro, fixed income and equities to funds, alternatives, and structured products and derivatives. He leads the network of chief strategists, communicating the house view on the economy and markets to financial advisors, clients and the media.
Prior to joining Quintet in 2020 as chief economist and macro strategist, Daniele served as chief euro area economist at Morgan Stanley in London. He completed the High Performance Leadership Programme at Saïd Business School, University of Oxford, holds a master’s degree in economics from Duke University and graduated from the Sapienza University of Rome. Featured in The Economist and Financial Times and often quoted in the generalist press, he’s a published author in finance and economics journals and investment magazines, a frequent speaker on CNBC and Bloomberg TV, and an ECB Shadow Council member.
Getting back to school
As investors return from the summer break, we’re seeing signs of renewed market momentum. Liquidity is improving and, while there have been occasional bouts of volatility and mixed headlines, sentiment remains cautiously optimistic. Equities have continued to rally throughout July and August even as economic growth slowed and political uncertainty lingered. Much of this resilience has been supported by expectations that the Fed will cut interest rates sooner than previously expected.
While inflationary risks around US tariffs remain, trade deals are more clearly defined, which eases an important risk factor for the Fed and investors alike. Furthermore, we think the US central bank is particularly sensitive to downside risks to the labour market. Therefore, the slowdown in employment growth supports our view that the Fed will cut rates in September, and again in December. This is likely to be an added tailwind to equity and credit markets.
Meanwhile, the structural AI investment cycle continues to deliver, with wider spillover effects across sectors and economies. Nvidia’s quarterly results reaffirmed strong capital spending and rising infrastructure demand, keeping AI firmly at the centre of our long-term portfolio positioning.
Turning to emerging markets
We’re increasing our overweight in emerging market equities. In our view, the combination of a weaker dollar, attractive valuations and positive earnings revisions creates a favourable backdrop. The outlook for China, which has the largest weight in this asset class, appears to be stabilising and policy support is coming through. India, the second largest, despite tariff headwinds, continues to benefit from favourable demographics, with a young and educated workforce in the services sector supporting incomes. We also believe that emerging markets offer valuable diversification in the more fragmented, multi-polar world we live in.
To fund this purchase, we are reducing our overweight in Japanese equities. The position has performed well thanks to corporate reforms, shareholder-friendly policies and buybacks, but valuations have risen. We still see scope for near-term outperformance, especially given the moderate yen appreciation we expect, which boosts returns when translated into euros and sterling. However, compared to when we initiated this call, the upside is now more limited, and we think locking in profits is the wise move.
Why we’re reducing our dollar exposure
We’ve grown more confident in our view that the US dollar is set to weaken further. This conviction is based on several factors. First, interest rate divergence has become more pronounced. The European Central Bank has already cut rates significantly and, as inflation is around the 2% target, we think rates will remain at current levels. The Bank of England, facing stickier inflation than its European counterpart, has signalled a reluctance to further lower rates at this stage. Given our view that the Fed is ready to cut rates, the interest rate divergence points to a weaker dollar.
Secondly, US fiscal pressures are mounting, as spending commitments and rising debt continue to weigh on the currency. And third, political risks are adding to the dollar’s vulnerability. President Trump’s criticism of the Fed and the reliability of US data, along with market speculation around an early announcement of Chair Powell’s successor before his term ends in May 2026, have raised investor doubts over the independence of US monetary policy and government agencies. These developments risk eroding confidence in US institutions and weaken the dollar’s appeal.
To reflect these views in our investment strategy, and further increase our dollar underweight position, we’re swapping some more of our US equities for ‘hedged’ versions that strip out currency effects, helping manage dollar risks while maintaining equity market exposure.
Staying diversified and managing risk
Diversification is at the heart of our investment philosophy. We balance regional risks and seek to seize global opportunities with our broad equity exposure. Plus, we favour European bonds (including gilts in sterling portfolios) over their US counterparts. To guard against persistent inflation, we’re keeping our long-term exposure to commodities and inflation-linked bonds. Our gold allocation also provides a buffer against uncertainty, including political risks in France, which so far appear to have limited impact on broader European markets.
There’s a lot of noise around how the Magnificent 7 dominate the US equity market. This is why we’re invested in an equal-weighted US equity index, which provides an equal exposure across more attractively valued sectors such as industrials and financials, which could also benefit from potential US stimulus and deregulation. Furthermore, we also own developed market low-volatility equities, which tend to perform well in periods of market stress.
The spike in long-dated bond yields – particularly in the US, UK and Japan, but also in the Eurozone – has grabbed the headlines. This reflects ongoing uncertainty about a potential rebound in inflation and, in the US especially, concerns over an elevates debt burden and central bank independence. While these longer-maturity bonds are starting to look more attractively valued, we think it’s too early to add exposure. To mitigate the risk of further price declines, our portfolios remain ‘short duration’, invested in assets that are less sensitive to moves in long-term interest rates.
If you have any questions about our latest market views or portfolios, please speak to your Client Advisor who will be happy to help.
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