Market and Asset Allocation Update – May 2025
CiN-sights Asset Allocation - May 2025
Dynamic Asset Allocation Calls (Quarterly view)
“You have to be fast on your feet and adaptive, or else a strategy is useless” – Charles De Gaulle
Thoughts
Australian Equities: With the election out of the way, we expect economic policy settings to remain unchanged and a net positive. The market is not cheap but will be supported. We anticipate further switching away from Banks to Industrials. Resources will remain under loved until China produces an asset building stimulus.
US Equities: Strong divergent forces anchor our call firmly at Neutral. As Jay Powell commented; tariff induced inflation, robust employment and a strong economy in the short-term points to no immediate rate cuts. Consequently, we expect small caps to be under pressure. US exceptionalism is under question with the global marginal investment $ currently going elsewhere. But will it stay that way?
European Equities: It took one speech from JD Vance to pivot the market’s view on Europe, economically and geopolitically. Followed by the initiation of the Tariff war, the market is undertaking a rebalancing away from the US equities to cheaper markets. Europe has switched from being a casualty to a beneficiary.
Emerging Markets: The structural economic imbalances facing China are now amplified by the Tariff war. Domestically China continues its struggle, official rate cuts continue but with limited impact. The wider EM (India, Vietnam, Indonesia etc) have yet to work through their Tariff negotiations, but the sector is attractive as a beneficiary of redirected trade flows. Move up to Neutral.
Property: A good run by listed REITs and the heavy index weighting of Goodman Group sees us move to underweight. Funds should be refocussed to unlisted opportunities. So, overall Neutral but discerning.
Private Equity: The prospect of lower rates and taxes and higher (Trump induced) optimism, Private Equity had anticipated a freeing up of a stagnant market. Alas, this has not eventuated, and it may take some time. We retain our preference for managers with secondaries portfolios.
Infrastructure: We lift our view on Infrastructure as a diversification from Equities. Portfolios with steady, stable assets with long-term inflation linked properties are to be targeted.
Gold: Gold has been on a tear-away. Thematics have been reinforced by increased geopolitical tensions as well as the re-emergence of de-dollarisation talk. We have reduced our exposure to a less aggressive overweight, banking some profits and in anticipation of a pullback.
Government Bonds: Our aversion to longer term rates has been correct. With 10yr rates now in the 4.25-4.50% range, we see our call move to Neutral. We remain positive on the shorter end of the market. We expect Chinese driven goods deflation to feed through to the CPI and enable RBA rate cuts. The curve will steepen. The same for the US, though timing and magnitude will be different (i.e. US later and lesser).
Private Credit: We remain neutral on Private Credit. Spreads have widened with concerns on tariff induced recession putting the market somewhat on the defensive. With Default rates yet to rise, investors may enjoy outsized risk/return metrics this period. We remain negative on High Yield, noting more attractive spreads, but fear that any credit deterioration will occur here first.
Cash: We remain overweight at X 2. Interest rate cuts have been deferred, and cash does give us optionality to deploy when opportunities arise.
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