Hanya Investment: Increasingly cautious about US stocks, Europe and emerging markets may continue to outperform the US

According to the Zhitong Finance APP, Hanya Investment stated that given the rising risks of global economic growth downturn, especially after the recent announcement of increased tariffs by the United States, it holds a more cautious stance on U.S. stocks considering the short-term risks. Due to economic data exceeding expectations and relatively attractive valuations, Europe and emerging markets may continue to outperform the U.S.

Hanya Investment analyzes that the policies of the Trump administration (including but not limited to reducing immigration, cutting federal government spending and positions, and raising the actual tariff rate in the U.S. by about 20%) are expected to lead to a decline in the U.S. economic growth rate to below 1% this year. Trump's tariff measures are effectively causing supply shocks to the U.S. economy, which may lead to a significant rise in U.S. inflation in the short term. It is estimated that these measures could push the overall consumer price index in the U.S. to rise year-on-year to 4.5% or above in the fourth quarter of this year.

For Asian countries (excluding China), U.S. tariffs act as a negative demand shock, hindering economic growth and suppressing Asian inflation. The decline in fuel and hard commodity prices will further exacerbate the downward pressure on inflation. This is expected to expand the space for monetary policy easing in Asia. With low inflation rates in Asia, there is room for interest rate cuts and lower yields.

Hanya Investment is optimistic about government bonds and cash as a safe-haven tool against economic recession, and if economic data clearly indicates a recession, Hanya Investment considers increasing duration allocation. If the economic outlook significantly deteriorates, corporate bonds will underperform, but U.S. investment-grade bonds are expected to outperform U.S. high-yield bonds.

In the short term, Hanya Investment prefers emerging market dollar bonds over U.S. credit, as the former's valuations are attractive and may benefit from U.S. dollar depreciation. Additionally, Asian dollar bonds may be supported by relatively stable Asian fundamentals and a net negative supply of bonds recorded in 2025.

In the medium term, unless the market becomes significantly clearer, predicting market outcomes will become increasingly difficult (if not impossible) in an increasingly turbulent global environment. Therefore, Hanya Investment maintains a defensive stance on risk assets while being more optimistic about government bonds to hedge against the increasing risk of economic recession.