Amundi: The key to bond allocation is to diversify from the U.S. market to Europe and emerging markets

According to the Zhitong Finance APP, recently, Amundi Asset Management released its "2025 Mid-Year Investment Outlook," stating that the global economy is being reshaped, forcing investors and policymakers to act cautiously. Uncertain policymaking is causing significant market volatility. Nevertheless, major economies have remained resilient so far. Group Chief Investment Officer Vincent Mortier noted that the government bond market is impacted by rising debt threats and increasing inflation concerns, leading to heightened volatility. Investors may demand higher compensation from long-term bonds, making yields appear attractive. The key strategy for the future is to diversify from the U.S. market to European and emerging market bonds.

Monica Defend, Head of Investment Research at Amundi Asset Management, stated that despite unpredictable policies, resilient corporate performance, and the restructuring of the global trade and financial system, expectations of central bank interest rate cuts will create opportunities for global equities. Amundi focuses on themes such as European defense spending, U.S. regulatory easing, Japanese corporate governance reform, and the "Make in India" initiative.

Looking ahead, the core viewpoints for the second half of 2025:

1. The impact of tariffs and fiscal policy on the U.S. economy

Amundi expects U.S. real GDP growth to slow from nearly 3% in 2023-2024 to 1.6% in 2025, primarily due to weakening private demand. Increased tariffs will raise prices, weaken consumer confidence and spending, and this uncertainty will pressure investments. Although fiscal measures and regulatory easing may slightly alleviate pressure, the impact may be limited, and an average tariff of about 15% (according to Amundi's baseline forecast) will result in economic losses and a temporary rise in inflation. As economic growth slows, the Federal Reserve is expected to cut interest rates three times in the second half of the year.

2. Rising geopolitical risks necessitate further diversification of investments

Currently, the geopolitical environment has become more contentious, and the U.S. government's implementation of tariffs and reduction of commitments to European security has also heightened tensions. This may prompt Europe to become more united, as national leaders seek to diversify trade partners through new trade agreements while recognizing the advantages of collective negotiation. In this environment, investors will continue to diversify investments outside the U.S., particularly favoring European assets.

3. Asset allocation: a moderate risk-taking stance, with adjustments for inflation hedging

Despite a bleak growth outlook, corporate performance remains resilient, and Amundi does not expect an earnings recession. Additionally, expectations of Federal Reserve interest rate cuts support Amundi's slightly aggressive asset allocation and anti-inflation strategy. Amundi is optimistic about global equities, focusing on valuation and pricing power, while also favoring commodities, gold, and hedging tools to address growth and inflation risks arising from geopolitical uncertainties. Infrastructure investments can provide stable cash flows. As the correlation between the dollar, stocks, and bonds changes, diversifying currency allocations will be quite important.

4. The critical moment for bonds will benefit European credit and emerging market bonds

Faced with unclear trade policies, rising public debt, and a large bond supply, investors will demand higher premiums for U.S. Treasury bonds. In developed markets, long-term bond yields will continue to be under pressure The central bank's interest rate cuts will continue to support short-term bonds and push the yield curve to steepen. Investors will seek to diversify investments across different markets, benefiting European and emerging market bonds. Amundi continues to invest in high-quality credit, favoring euro-denominated investment-grade credit (financial and subordinated credit).

1. In terms of stocks, tariff impacts will become a key consideration for sector selection.

Stocks may record low single-digit returns in the second half of the year, but the rotation trend will continue. The attractiveness of the European market is expected to become a structural theme, benefiting small and mid-cap stocks with still very attractive valuations. Globally, sector selection will be key. Amundi favors domestic demand-driven sectors and services to mitigate tariff risks, focusing on themes such as U.S. regulatory easing, European defense and infrastructure, and ongoing reforms at the Tokyo Stock Exchange, which are creating a more favorable environment for investors.

1. India and emerging markets benefit from trade diversion trends.

Driven by a rebound in macro dynamics and stable inflation, emerging market stocks will be sought after in the second half of 2025. As U.S. exceptionalism wanes, India and ASEAN are gradually becoming major beneficiaries of global supply chain diversions. The "Make in India" initiative is attracting multinational companies, especially in the defense and information technology sectors. These markets, focusing on domestic demand-driven industries, are not only manufacturing hubs but also vibrant growth engines, poised to seize opportunities from structural changes and an expanding consumer base.

1. Continue to diversify investments in physical and alternative assets.

Given the surge in capital investment in these areas, more careful selection is required. Overall, the geopolitical economic environment is challenging, prompting investors to diversify through private assets, favoring robust domestic themes. Private debt and infrastructure are expected to remain the most attractive areas. Private debt is likely to benefit from strong direct lending and fundraising, while infrastructure will attract investors seeking inflation protection.