Five investment destinations according to our Market Outlook
Although we are likely in the later stages of the current equity bull market, we remain optimistic about the prospects for equities and believe investors should stay invested. While valuations are no longer cheap, market sentiment and investor positioning have yet to reach excessively optimistic levels. What will be important though, as leadership differs across global markets, is building an internationally diversified portfolio. Below we highlight the regions investors should focus on and how to invest in them.
Find out about the current investment environment in our Market Outlook Year-End 2025.
1. US: Focus on unique segments that cannot be replicated
Within the US, the top performers are still in a small group of exceptional companies with robust earnings growth, particularly those in the artificial intelligence space. Notably, the Magnificent 7 stocks continue to outpace the broader S&P 500 Index in terms of capital expenditure growth. We would therefore focus on unique segments in the US that cannot be replicated elsewhere. Meanwhile, after any short-term rallies in US equities, we would use the opportunity to rebalance and diversify further into equities elsewhere with more compelling valuations and more attractive growth prospects than their US counterparts.
2. Europe: We favour value and domestically oriented cyclical sectors
Increasing exposure to Europe is one way investors can enhance portfolio diversification. We believe European equities stand to benefit from a brighter economic outlook for the continent, supported by additional fiscal stimulus measures. We favour value and domestically oriented cyclical sectors, which are well positioned to gain from improving local growth prospects and are less exposed to tariff and currency risks. German equities are particularly attractive due to their cyclical tilt, with mid-caps offering more compelling valuations and greater potential to benefit from fiscal support. Pro-growth policies from Germany’s new government further support the outlook for German share prices.
Industrials and financials
With regard to sectors, industrials and financials stand out. In the industrials space, our focus is on companies that are poised to benefit from long-term structural growth trends. We favour the machinery and equipment subsector, followed by infrastructure, with a regional preference for Europe over the US due to its more favourable cyclical backdrop. Meanwhile, financials should benefit from an environment characterised by sustained higher bond yields as well as the steepening of the yield curve. This scenario is expected to boost banks’ interest income and consequently their overall profitability. Within the sector, we maintain our Overweight rating on European banks given their more attractive valuations.
3. Japan: IT leaders, domestic champions, and businesses undergoing structural transformation
Our positive outlook for Japanese equities remains, supported by continued progress with regard to corporate reforms and heightened corporate activity this year. The gradual return to normality with interest rate hikes also supports this positive view. Dividend growth is set to accelerate, alongside a record pace of share repurchases. While we favour high-quality Japanese stocks, some of these – particularly exporters – may face short-term headwinds due to trade tensions. We highlight three key opportunities: information technology (IT) leaders, domestic champions, and businesses undergoing significant structural transformations.
4. China: More domestic policies should mitigate volatility
Although ongoing trade talks may cause volatility in Chinese markets, more supportive domestic policies should partly mitigate this. We remain constructive on Chinese equities, as fundamentals – like profitability and shareholders’ returns – and liquidity conditions are improving. We continue to like high-dividend stocks, and now expect A shares to catch up with H shares, as the A-share premium nears a new low and onshore market liquidity improves.
5. India: Economic resilience suggests a positive outlook
The new 50% tariff on Indian exports to the US threatens to significantly erode the country’s export competitiveness. However, despite the near-term uncertainty regarding tariffs, equity fundamentals, as well as the structural drivers and resilience of the economy, suggest a positive long-term outlook for Indian stocks. We see tailwinds from double-digit earnings growth, monetary policy easing, and consumption tax cuts.
In the current environment, investors should stay invested in equities, but diversification is key. We would focus only on unique segments in the US, and increase exposure to other equity markets, including those in Europe, Japan, China, and India.