Global Markets Balance Tariff Risks with Tech and Policy Support

Global equity and bond markets remain volatile amid elevated US-China tariffs, persistent inflation, and delayed Fed rate cuts. Navigate persistent inflation and delayed rate cuts with defensive bond strategies and diversified portfolios positioned for resilience and long-term returns.

Key Points

• Global equities show resilience led by US tech and China’s undervalued sectors, but face persistent pressures from tariffs, inflation, and delayed rate cuts, with investment opportunities centered on AI-driven US companies, China’s recovery, Japan’s reforms, and India’s consumption growth.
  
  
• Global bond markets face heightened volatility and credit risks driven by persistent inflation, delayed US rate cuts, fiscal deficits, and geopolitical tensions, with European credit offering better value and China’s policy easing supporting local bonds.
  
  
• The USD/SGD remains elevated amid USD strength and interest rate differentials, but with expected Fed cuts, investors should favor USD and JPY for stability, cautiously add INR and CAD for long-term growth, and avoid CNH, MYR, and IDR due to policy and trade risks.
  ​
  
• Gold remains a preferred hedge for SGD investors amid inflation, geopolitical risks, and expected Fed cuts, with strong Asian demand and central bank buying supporting prices, while ETFs like GLD and IAU offer convenient exposure alongside diversification into industrial metals.

Download the Full Report

​Integrate key insights into a holistic strategy for your company.

inv250510_-_global_markets_balance_tariff_risks_with_tech_and_policy_support.pdf
File Size:	990 kb
File Type:	pdf

Download File

---

Global Equities Rebound on Tariff Pauses but Volatility Persists

Global equities have staged a strong rebound, rising 14% over the past month as trade uncertainty eased. However, volatility remains elevated amid unresolved trade tensions and fragile consumer sentiment.

• The rebound in global equities, driven by a 14% surge following tariff pauses, reflects the market’s acute sensitivity to geopolitical developments.
• US technology stocks are leading the recovery, with the semiconductor segment projected to deliver 30% earnings growth in 2025, fueled by increased AI spending from tech giants. This underscores the critical role of AI-driven demand in sustaining US tech sector momentum.
• China’s technology sector continues to present attractive opportunities, trading at a 12-month forward P/E of just 10.9x compared to 12.8x for Asia ex-Japan. Despite outperforming the rest of Asia this year, its lower valuations suggest further upside potential.
• Japan’s industrial sector is benefiting from export strength amid a weak yen and ongoing policy normalization, while India’s domestic consumption and structural reforms are driving strong equity performance, particularly through the Nifty 50 Index.

Tariff and Inflation Pressures Weigh on Equity Valuations and Earnings

Despite recent market gains, equities face ongoing headwinds from rising input costs, persistent inflation, and tariff-related disruptions.

• Reflecting these challenges, S&P 500 earnings forecasts for 2025 have been revised downward to 8.6% from a prior estimate of 10.5%, highlighting the financial strain impacting corporate profitability.
• In response to tariff concerns, US companies rushed to import goods in Q1, leading to a record surge in imports and creating significant inventory imbalances that could disrupt production cycles and sales momentum in the months ahead.
• Sectors such as automotive and consumer electronics remain highly exposed to tariff risks, with the US effective tariff rate set to rise from 2.3% to 16% this year, and steel and aluminium tariffs still in place—further pressuring input costs and margins.
• In Europe, weak retail sales growth of just 1.5% year-on-year and persistent core inflation at 2.7% continue to weigh on consumer demand and corporate earnings, underscoring the region’s fragile economic recovery.

Overweight US Tech, China AI, and India’s Consumption-Led Growth

Investors should focus on markets and sectors with strong AI-driven innovation and resilient consumption demand.

• US technology and AI companies such as Microsoft, Adobe, and NVIDIA remain attractive, supported by strong earnings momentum and resilient valuations. The “AI mega force” continues to justify overweight positions in US equities, even amid market volatility.
• China’s undervalued technology and consumer sectors remain compelling, with the MSCI China Index trading at a forward P/E of just 10.9x. Policy easing and the ongoing AI tailwind make the Hang Seng Technology Index particularly attractive for growth-oriented investors.
• Japanese industrials are capitalizing on export competitiveness amid a weak yen, while shareholder-friendly corporate reforms support financial sector growth. Together, these factors reinforce Japan’s appeal to equity investors.
• India’s economy continues to benefit from robust domestic consumption and infrastructure spending, with the Nifty 50 Index supported by structural demand and market reforms. This positions India as a key growth market for long-term investors.

Rising US Yields and Policy Easing in China Shape Bond Markets

Bond markets are adjusting to diverging monetary policies and rising geopolitical risks, leading to significant shifts in yields and credit spreads.

• US 10-year Treasury yields have climbed sharply, reaching 4.32%, up 40 basis points from their April lows. This rise reflects increasing duration risk and elevated term premiums, particularly impacting long-duration bonds as investors adjust to fiscal imbalances and policy uncertainty.
• High-yield and emerging market (EM) bonds experienced notable spread widening following the April 2 tariff announcements. However, spreads partially recovered after the April 9 policy pause, illustrating heightened credit risk and how sensitive bond markets remain to shifts in global trade policy.
• European credit markets now offer more attractive spreads compared to US investment-grade bonds, benefiting from improved valuation metrics. Investors are increasingly favoring European corporates, both investment grade and high yield, as they present better risk-adjusted return opportunities relative to US counterparts.
• China’s central bank has moved proactively to support its economy, cutting the 7-day repo rate by 10bps and lowering the reserve requirement ratio (RRR) by 50bps. These measures have injected liquidity into the financial system, improving bond market sentiment and supporting demand for Chinese sovereign and policy bank bonds.

Inflation and Delayed Fed Cuts Create Global Bond Market Challenges

Global bond markets face ongoing challenges as inflation remains persistent and central banks delay meaningful monetary easing.

• Long-duration US Treasuries remain unattractive, weighed down by persistent fiscal deficits and geopolitical fragmentation that have driven term premiums higher. This environment continues to depress bond prices and increase volatility, especially for longer-maturity instruments.
• In the Eurozone, core inflation remains stubbornly high at 2.7% year-on-year, while retail sales growth remains weak. These conditions limit the European Central Bank’s policy flexibility and exert downward pressure on bond valuations, as investors demand higher yields to compensate for inflation risks.
• EM bonds face rising credit risks amid ongoing global trade uncertainties and volatile EM currencies. With emerging market currencies particularly sensitive to trade tensions and shifting risk sentiment, capital outflows and credit risks remain elevated in this segment.
• Looking ahead, the Fed is expected to implement three 25bps rate cuts over the next 12 months, bringing rates to a range of 3.75% to 4%. This anticipated easing should help lower yields and improve bond valuations over the medium term, providing some relief to bond investors.

Prioritize Medium-Duration Treasuries and Investment-Grade Corporates

In this uncertain environment, investors should focus on safer bond segments offering moderate duration and strong fundamentals.

• US mortgage-backed securities (MBS) remain attractive, offering higher yields relative to government bonds without taking on excessive duration risk. With rate stability expected in the near term, MBS present a solid option for enhancing portfolio income.
• Chinese sovereign and policy bank bonds provide short- to mid-term opportunities, supported by ongoing policy easing. While FX risks related to CNH depreciation persist, policy support continues to improve bond valuations and create near-term investment opportunities.
• EM USD-denominated bonds offer meaningful diversification benefits, backed by high investor diversity as indicated by a Fractal Dimension of 2.92. This suggests lower concentration risk and greater portfolio stability, making them an attractive option for investors seeking exposure to emerging markets with reduced volatility.
• Investment-grade corporates in the technology sector continue to demonstrate resilience, benefiting from AI-driven productivity enhancements. Companies actively investing in AI are delivering tangible cost reductions and improving profitability, which supports strong credit fundamentals and helps maintain robust credit quality even amid macroeconomic pressures.

USD Strength and JPY Safe-Haven Flows Dominate Currency Trends

Currency markets remain highly volatile, with the US dollar and Japanese yen dominating safe-haven flows as investors navigate inflation risks and shifting monetary policies.

• Expect USD/SGD to stay range-bound at elevated levels until clearer signals of US policy easing emerge in H2 2025. The USD/SGD pair remains elevated, driven by persistent US inflation and delayed Federal Reserve rate cuts. The US dollar index has maintained strong year-to-date gains, reflecting continued investor preference for USD assets as inflation remains sticky and the Fed holds off on aggressive easing.
• The Japanese yen and Taiwanese dollar have shown resilience as preferred safe-haven currencies. The TWD, in particular, has appreciated 9% year-to-date against the USD, supported by strong capital inflows and robust export performance, while the JPY continues to attract safe-haven demand during periods of market stress.
• The Chinese yuan (CNH) is expected to weaken further, potentially testing 7.70 against the USD in the next 12 months. China’s ongoing policy easing and targeted stimulus measures are fueling depreciation risks, keeping pressure on the yuan as the government focuses on liquidity support and economic stabilization.
• Emerging market currencies such as the Malaysian ringgit (MYR) and Indonesian rupiah (IDR) remain under pressure from global trade disruptions and capital outflows. These currencies are particularly vulnerable to trade uncertainty and shifting investor sentiment, driven by their heavy reliance on exports and weaker macroeconomic fundamentals.

High Volatility Expected in GBP, EUR, and CNH Amid Policy Divergences

Policy uncertainty across major economies is driving high volatility in GBP, EUR, and CNH exchange rates.

• The US dollar remains firmly supported by elevated inflation and expectations that the Federal Reserve will delay rate cuts longer than markets currently price in. This policy stance continues to bolster USD strength against a broad basket of currencies.
• The British pound and euro remain volatile, with the UK economy slowing to an expected growth rate of just 1% in 2025 and the Bank of England already cutting rates to 4.25%. In the Eurozone, core inflation remains elevated at 2.7% year-on-year, limiting the European Central Bank’s flexibility and adding further uncertainty to the EUR’s outlook.
• The Chinese yuan faces continued depreciation pressures as policy easing persists. With China’s government signaling further liquidity injections and targeted stimulus, the CNH is likely to remain weak, with an expected test of 7.70 against the USD.

JPY and USD Preferred, Avoid CNH and Weak Emerging Market Currencies

In an environment of heightened uncertainty, investors should focus on stable, resilient currencies and avoid those vulnerable to policy and trade risks.

• The Japanese yen remains a preferred safe-haven currency, offering policy stability and potential appreciation during episodes of market stress. With its defensive characteristics, the JPY provides tactical protection for portfolios in volatile market conditions.
• The US dollar continues to offer attractive near-term yield opportunities before its anticipated depreciation in the second half of 2025. With US 10-year Treasury yields remaining above 4.0% to 4.25%, USD-denominated assets present compelling returns, particularly for SGD-based investors seeking short-term yield advantages.
• The Indian rupee (INR) and Canadian dollar (CAD) present longer-term growth opportunities, underpinned by structural reforms in India and commodity-driven strength in Canada. These currencies benefit from positive macroeconomic trends and resilient domestic demand.
• Investors should avoid exposure to the Chinese yuan, Malaysian ringgit, and Indonesian rupiah due to ongoing policy-driven depreciation risks and weak export performance. These currencies remain vulnerable to global trade disruptions and capital outflows, making them less attractive in the current environment.

​Gold Remains a Resilient Hedge Against Inflation and Market Risks

Gold continues to serve as a key defensive asset in portfolios, holding its ground amid global uncertainty and market volatility.

• Gold prices are consolidating near USD 3,306 per ounce, with strong technical support at USD 3,000. While prices remain below recent highs of around USD 3,430, the downside is limited, offering stability for investors seeking to preserve wealth during turbulent times.
• Central banks remain significant buyers of gold, having purchased 244 tonnes in Q1 2025. Although slightly below the recent average, this level remains above long-term historical trends, underscoring the continued institutional demand for gold as a store of value.
• Asian demand for gold remains strong, particularly from China and India. China’s gold ETF inflows remain elevated, and local prices have reached near-record premiums compared to global benchmarks, signaling persistent appetite for gold among regional investors.
• Industrial metals like copper and aluminium are also benefiting from rising demand, offering complementary opportunities alongside gold. Sustained interest in these metals is being driven by increased defense spending and large-scale infrastructure projects globally.

Persistent Inflation and Currency Risks Sustain Demand for Safe-Haven Assets

Inflationary pressures and currency volatility continue to support demand for gold as a safe-haven investment.

• With persistent U.S. deficits and sticky inflation, real assets like gold remain in high demand. Investors are turning to gold as a reliable store of value amid concerns about rising inflation and geopolitical instability.
• The Federal Reserve is expected to implement three 25-basis-point rate cuts over the next 12 months, starting in the second half of 2025. These anticipated cuts will reduce the opportunity cost of holding non-yielding assets like gold, further supporting its price outlook.
• Ongoing policy easing in China and the expected depreciation of the yuan (CNH) to 7.70 against the USD have increased currency volatility in the region. As a result, Asian investors are hedging against this depreciation by increasing allocations to gold.

​Accumulate Gold on Price Dips and Diversify Into Industrial Metals

For SGD-based investors, the current market presents strategic opportunities to accumulate gold and diversify into industrial metals.

• Investors are advised to buy gold on price dips between USD 3,000 and USD 3,250 per ounce for tactical accumulation. This strategy offers a clear entry point for those seeking to hedge against inflation and FX volatility while securing long-term value.
• To improve liquidity and accessibility, investors should consider gold ETFs such as GLD and IAU, or SGX-listed options. Elevated demand for China-based gold ETFs also signals strong regional liquidity, making ETFs an efficient vehicle for exposure.
• Diversifying into copper and aluminium through commodity ETFs can provide growth potential alongside traditional safe-haven assets. The ongoing global push for infrastructure development and defense spending is sustaining demand for these industrial metals.
• Despite market fluctuations, gold should remain a core holding as an inflation hedge and safe-haven asset. With U.S. fiscal deficits remaining high and inflationary pressures persistent, gold continues to play a critical role in protecting portfolios against macroeconomic risks.