Novi: The market will face dual pressures in the second half of the year, requiring a reassessment of asset allocation strategies
Nuveen expects that in the second half of 2025, the market will face dual pressures of economic slowdown and policy uncertainty. Investors need to reassess their asset allocation strategies and focus on areas with solid fundamentals, defensive characteristics, and spread advantages. The Federal Reserve may cut interest rates, the European Central Bank is likely to pause its actions, and the Bank of Japan is expected to raise interest rates. It is recommended to pay attention to assets dominated by spread-driven returns and reduce reliance on risk-free interest rates, especially in the municipal bond and real estate markets. Large U.S. technology companies are benefiting from AI expansion, while the financial and infrastructure sectors have become the focus
According to the Zhitong Finance APP, Nuveen recently released its mid-term outlook for 2025, in which its Global Investment Committee shared views on the global economy, major asset classes, and investment strategies for the second half of the year. Nuveen expects that the market will face dual pressures of economic slowdown and policy uncertainty in the second half of 2025. Investors need to reassess their asset allocation strategies, focusing on areas with solid fundamentals, defensive characteristics, and spread advantages to enhance return potential and mitigate risks.
Regarding global central bank interest rate policies, the Federal Reserve may cut rates once in September and December, but if inflation rises due to tariffs, it may pause its easing measures. The European Central Bank will pause actions after its earlier rate cut, while the Bank of Japan is expected to raise rates once.
In terms of portfolio allocation, Nuveen recommends focusing on assets that dominate returns through spreads and reducing reliance on risk-free rates. Municipal bonds continue to attract long-term investors due to their steep yield curve; the real estate market is gradually recovering after two years of sluggishness, with strong demand for medical office spaces, grocery retail properties, and affordable housing.
In the stock market, large U.S. technology companies benefit from the expansion of AI, surging demand for data centers, and power generation, with solid market fundamentals leading to an increase in allocations. Additionally, defensive sectors such as finance and infrastructure have become focal points; European stocks possess long-term value, while emerging markets have seen diminished attractiveness due to trade policies.
Nuveen advises investors to adopt a broadly diversified and actively managed strategy to cope with policy changes and economic slowdowns. Preferred loans and preferred securities are favored due to attractive valuations and solid credit quality, while investment-grade corporate bonds are slightly less favored due to narrowing spreads.
In real estate, Nuveen continues to focus on opportunities arising from demographic and educational diversification, with optimism in the healthcare, industrial, and residential sectors. However, the office market still faces challenges, and although vacancy rates are expected to improve, recovery will take time. Real estate bonds currently have valuation advantages and are more attractive compared to real estate stocks.
In infrastructure, Nuveen prefers public-private projects, particularly investments related to electricity, utilities, and energy storage. Agricultural land assets are viewed as an inflation hedge, but returns are expected to slow in 2025, especially for grain crops affected by tariff pressures
