2025 midyear outlook: experts’ views on cross-asset opportunities for H2

Although trade policy uncertainty has eased and tensions in the Middle East have cooled down, these continue to be extraordinary times for markets and economies. Such dynamics call for portfolios to take a highly selective investment approach to find resilient assets that offer the potential to deliver consistent performance.

Amid wide-ranging trends shaping the investment outlook, we see four key themes defining the second half of 2025:
 

• Evolving US exceptionalism – while this is not yet dead, it is entering a new phase, with support to come from a private sector invigorated by artificial intelligence (AI). Yet expanded opportunities around the world, such as Germany’s fiscal turnabout and the DeepSeek-driven return of China’s internet sector, will compete for investor flows amid ongoing shifts in market leadership.
   
• Industrial tailwinds and healthcare headwinds for global equity markets – we seek exposures to mispriced companies with the pricing power, scale and flexibility to navigate turbulence. The rise of AI is supporting industrials, and while pharmaceuticals face a threat from tariffs, we still see opportunities in certain pockets of the industry.
   
• A more global vision for fixed income – the superiority of US credit and its underlying fundamentals is waning as the differential with the global fixed income universe shrinks. Credit spreads remain tight across most markets, making them relatively less appealing to those with cross-asset-class reach. However, we continue to find value in Asian credit (excluding China property), where relative valuations and fundamentals are more compelling.
   
• Asia emerging as a region of relative resilience and opportunity – global volatility has led to investors seeking exposure in Asian markets, where resilient credit fundamentals (with limited US exposure), equity potential from domestic demand, AI innovation and sector-specific strengths in markets like India, Taiwan and Korea provide tailwinds.

US exceptionalism enters a new phase

Much of the so-called “US exceptionalism” was a faster post-Covid relative growth rate propelled by a US-favoured productivity gap, as well as US fiscal overexpansion at a time when other nations remained fiscally dormant. This gap now seems to be closing after taking into account the recent “Big, Beautiful Bill”.

One school of thought is that a structurally higher fiscal deficit (for now) has made it difficult for US rates to drop as much as elsewhere. But our view is that the US real GDP growth could grow meaningfully faster, with AI the new driver of higher productivity.

For now, it’s clear the portion of US exceptionalism previously attributable to greater US fiscal expansion is behind us, while other governments are now more actively reviving their economies.

On the hunt for quality in equities

While the first half of 2025 was unsettling for stock buyers, there has been no shortage of mispriced companies during this time – suggesting the market may not be appreciating certain names as much as we believe it should.

For example, several strong trends still support industrials, including the resolution of post-Covid de-stocking and the rising adoption of AI in industrial settings. More broadly, companies are ready to move forward with spending plans after months of hesitation driven by US election uncertainty and unresolved trade policy. Also, these companies can potentially pass along tariffs imposed while maintaining their profits, which could set the stage for an industrial rebound.

Collectively, these tailwinds should drive demand for industrial companies that supply the infrastructure to support AI’s expansion.

Excitement about the rollout of AI in the US and China continues to draw investor interest. It offers particularly promising opportunities in equities, enhancing productivity growth beyond the tech sector. Data-rich companies, sectors and regions have the potential to benefit from AI, though more of these reside in the US than elsewhere.

Many S&P 500 constituents are likely to benefit from AI

_{Source: FactSet, McKinsey, and HSBC as of April 2025.}

Elsewhere in the equities landscape, pharmaceuticals may face the most challenging outlook. The sum fear of tariffs, most-favoured nation (MFN) pricing and US Medicare drug negotiations under the Inflation Reduction Act, are all weighing on sentiment. Yet despite dark clouds over the sector overall, our selective approach to find mispriced companies can pinpoint opportunities: in pharma, via advances in obesity treatments and immunology; in biotech, in terms of rare and autoimmune disease treatments; and in medical devices.

Turning to global fixed income resilience

For fixed income investors, we believe the focus is on opportunities beyond the US. As credit spreads remain tight across most markets, all but Asia credit (excluding China property) appear less appealing to those investors with cross-asset-class options.

Over the coming months, investors can look for overreactions to a second half slowdown in the US as tariff-driven stagflation sets in, with US high yield spreads potentially attractive if they widen.

In the meantime, investors can consider edging up overall duration after yields spiked earlier this year and before a slowdown emerges, which could be a reason to come back to US Treasuries and mortgage-backed securities. To date, we have favoured UK gilts, German bunds and the longest areas of Japanese government bonds over Treasuries.

We think this global backdrop sets the stage for a closer look at Asia as credit in the region is increasingly on the radar of investors seeking to diversify away from the US.

Spotlight on Asia

In Asia, previous research by our regional fixed income team revealed that export-heavy economies like Vietnam and Thailand remain fearful of Liberation Day tariffs, while diversified markets such as India and Singapore would be less affected. In general, the region’s credit markets remain resilient due to stable fundamentals, a supportive investor base and limited US exposure.

Major Asia economies can weather the upcoming trade tariff disruption

_{Source: PineBridge Investments estimates for Asian countries and the IMF World Economic Outlook for others. Actual data as of 31 December 2024; forecast for 2025 as of 3 July 2025. For illustrative purposes only. Any opinions, projections, forecasts, or forward-looking statements presented are valid only as of the date indicated and are subject to change. Diversification does not necessarily ensure against market loss. Past performance, or any prediction, projection, or forecast, is not indicative of future performance.
In the calculation of GDP growth impact (ppt), we adopted an assumption on US import elasticity, -2 for China, and -1 for the rest of the countries. Assumed tariffs per US announcement as of 2 April 2025. *With exception of China as of 12 May 2025, Vietnam as of 2 July 2025.}

These dynamics, along with investors rethinking their US exposure, could bolster Asia US dollar credit.

In the Asia investment grade (IG) space, credit metrics remain robust across the region, with balance sheets well-positioned to absorb moderate shocks. The supply of Asia IG credit has also evolved over the past two years, making the asset class more diversified and enhancing its appeal. Japanese and Australian corporates have stepped up issuance, reflecting both investor appetite and issuer confidence, while Chinese supply has declined.

Meanwhile, technicals for Asia IG remain strong. Maturing bonds and coupon repayments continue to outpace supply, particularly in high-quality names, and investor positioning remains constructive. Even if we see any marginal widening in select segments due to deteriorating global risk sentiment, we believe this will be contained.

For Asia high yield (HY), we are broadly constructive, and we view any spread volatility or weakness in high-quality names due to uncertainty over trade policy as a buying opportunity.

Default rates have declined over the past two years and, excluding the distressed China property sector, have stayed consistently low. From a yield perspective, the asset class continues to offer attractive carry with low duration, especially when compared with HY bonds in developed markets.

While some names – particularly in commodity-linked sectors – may face pressure from a broader economic slowdown, we believe the impact will be manageable. At the same time, sectors tied to domestic demand could benefit if governments bump up stimulus to offset export weakness.

Within Asian equities, excitement about the future of AI’s potential continues to gain momentum. Taiwan, as a leader in semiconductor design and hardware manufacturing, is uniquely positioned to support future advanced AI infrastructure.

The ongoing development of AI in China is also driving investment in data centres and computing infrastructure, creating durable demand in related sectors. Apart from AI, we also see some more bright spots in China, for instance the encouraging domestic consumption level especially within local travels and strong electric vehicle sales. Although the economy has perhaps felt the change in stance on US tariffs, we think further policy support is likely to aid a recovery in domestic demand.

We also like Indian stocks due to the country’s status as an importer and its likelihood of benefiting from US-China tensions. Further, after economic growth turned positive in early 2025 for the first time in 12 months, stimulus measures such as rate cuts for the first time in about five years, tax cuts and infrastructure investment should collectively give the economy a jolt in the right direction.

In Japan, where structural support via ongoing corporate governance reforms and domestic resilience have taken centre stage, we expect to see a gradual recovery through the rest of 2025. This improving macro backdrop is expected to benefit the Japanese stock market, spurred by growing demand from inbound tourism in the coming months, along with labour shortages across the country, which will result in solutions in the form of automation and IT spending.

Hunting ground for active investors

Globally across sectors and asset classes, markets do not always move in tandem with fundamentals, especially during uncertain times like now when sentiments can turn quickly.

This divergence create opportunities for active investors. The rest of this year will be no different.

See what's shaping the second half of 2025 - read PineBridge Investments' midyear outlook by asset class:

Multi-asset – Northeast Asia version | Southeast Asia version | Other

• Michael J. Kelly, CFA, Global Head of Multi-Asset
• Hani Redha, CAIA, Portfolio Manager, Head of Strategy and Research for Global Multi-Asset

Global equities – Northeast Asia version | Southeast Asia version | Other

• Rob Hinchliffe, CFA, Portfolio Manager, Head of Global Sector Cluster Research
• Kenneth Ruskin, CFA, Director of Research and Head of Sustainable Investing - Global Equities
• Christopher Pettine, CFA, Healthcare Analyst - Global Equities
• Michael Mark, Client Portfolio Manager, Equities

Global fixed income – Northeast Asia version | Southeast Asia version | Other

• Steven Oh, CFA, Global Head of Credit and Fixed Income, Co-Head of Leveraged Finance

Asia fixed income – Northeast Asia version | Southeast Asia version | Other

• Omar Slim, CFA, Co-Head of Asia Fixed Income
• Andy Suen, CFA, FRM, Co-Head of Asia Fixed Income

Asia equities – Northeast Asia version | Southeast Asia version | Other

• Elizabeth Soon, CFA, Head of Asia ex-Japan Equities
• Midori Katsumi, Head of Japanese Equity
• Yukihiro Iwasaki, Senior Portfolio Manager, Japan Equities
• Simon Tsoi. CFA, FRM, Portfolio Manager, Asia ex Japan Equities
• Huzaifa Husain, Head of India Equities
• Priyasha Mohanty, Senior Associate, Equities