Fidelity International: Expects the probability of re-inflation in the U.S. to be around 40%, and the attractiveness of non-U.S. asset investments will continue to increase
Fidelity International expects the probability of re-inflation in the United States to be around 40%, with the possibility of stagflation also at 40%. Under the influence of global policies, diversifying investments into other regions has become particularly important. Fidelity believes that the U.S. economy faces recession risks and expects the Federal Reserve will not cut interest rates. Funds may flow into the Eurozone and emerging markets, especially bonds in Brazil and Mexico. Inflation in Asia is cooling, and central banks may cut interest rates, which will continue to enhance the attractiveness of Asian local currency bonds
According to the Zhitong Finance APP, Matthew Quaife, Head of Global Multi-Asset Investment Management at Fidelity International, pointed out that recent policies are driving a deep division in the global order. The role of the United States as a relatively safe haven is diminishing, and the bank expects a 40% chance of re-inflation in the U.S., while the possibility of falling into a stagflation scenario with slowing economic growth and rising prices is also 40%. In the current new era, diversifying investments into other regions is particularly crucial.
Fidelity believes that as U.S. demand declines, the U.S. economy faces the possibility of recession. If tariff measures are relaxed and inflation remains high, Fidelity expects that the Federal Reserve will not cut interest rates this year, as monetary policy is difficult to implement under uncertain tariff prospects.
Matthew Quaife indicated that some of the funds flowing out of U.S. assets may be directed towards the euro, as Germany is increasing its fiscal policy, bringing recovery potential to the Eurozone economy. Additionally, the valuation and defensiveness of the yen make it attractive. Gold will continue to serve as a store of value in response to geopolitical situations.
He pointed out that emerging market equities and bonds are attractive, and the depreciation of the dollar will benefit emerging market bonds, with Brazilian and Mexican bond yields being particularly appealing. The valuation of emerging market equities is relatively low, and with breakthroughs in artificial intelligence in mainland China, local stock markets are supported to rise, driving overall improvement in emerging markets. Mainland China is transforming from the world's factory to a global driver of technological innovation, which is expected to further unleash the growth potential of Chinese technology stocks.
Fidelity International Fund Manager Peng Tianyu stated that inflation is continuing to cool in most parts of Asia, and recent currency appreciation in the region provides more room for central banks to utilize monetary policy, with expectations of more interest rate cuts in Asia in the second half of the year.
Peng Tianyu pointed out that the U.S. trade policy is inconsistent, and the continuously expanding federal debt scale is causing global investors to rebalance their portfolios, with some funds shifting from the dollar and long-term U.S. Treasury bonds to assets outside the U.S., which will benefit various Asian assets from this market shift.
Peng Tianyu noted that an increasing number of index companies are including Asian local currency bonds in their global bond indices, and the attractiveness of Asian local currency bonds will continue to rise. The potential for interest rate cuts by regional central banks and currency appreciation will boost the demand for Asian local currency bonds
