As we head towards the second half of 2025, HSBC Asset Management have released their latest update, outlining their belief that the global economic regime is in transition, with old macro assumptions and the typical investment market playbook being upended. The following statement was released today:
In our view, investors need to follow these “new rules” and embrace their implications for markets. Our outlook for the next six months is shaped by five interconnected themes that reflect this evolving landscape: “G-zero” economics, volatile market narratives, the end of US exceptionalism, a shift from global to local, and new asset classes to diversify portfolios.
G-zero economics
Global economic growth is entering a new phase. Cyclical momentum is easing, and growth rates across Western economies are converging. In our view, the world’s premium growth opportunities are now found in Asia and emerging markets, while US growth looks to be “catching down” to other developed markets. At the same time, a more fundamental change is underway as global economic philosophies increasingly diverge. We are seeing the rise of a multipolar world order shaped by a resurgence of economic nationalism – whether it’s in the new industrial strategies of the US and Europe, the persistence of China’s state capitalist model, or the more economically assertive, non-aligned Global South. The days of unipolar economic leadership, once dominated by the US or the G10, are being replaced by a new G-zero environment, in which no single economic power has the willingness or ability to lead the global economic order. It is an economic regime where supply shocks are more important, and where growth is more constrained, and inflation is higher, and more volatile.
Volatile market narratives
Market volatility has become a defining feature of the current investment landscape. Higher levels of uncertainty – driven by unpredictable policy signals and the stop-start nature of tariff escalations in the first half of the year – have kept markets on their toes. Adding to this has been a reactive and data dependent Federal Reserve, which has increased investors’ sensitivity to news and data. In our view, this volatility is not an anomaly, but a structural feature of today’s environment. As pressure builds on risk-adjusted returns, it is important that investors are ready to adapt. Staying nimble and embracing tactical asset allocations will be key to navigating markets that have become inherently more unsettled.
Xavier Baraton, Global Chief Investment Officer at HSBC Asset Management, commented: “We are navigating a global economy that is undergoing a profound transformation. As growth across developed markets converges and cyclical momentum fades, the most dynamic opportunities are increasingly found in Asia and emerging markets. But beneath the surface, an even deeper shift is underway — from a world of unipolar economic leadership to a ‘G-zero’ environment, where no single nation holds sway over the global order. This is reshaping investment conditions in fundamental ways, with volatility becoming a defining feature of the current macro regime. In this environment, investors must be prepared to adapt tactically and lean into diversification to drive returns and manage risk.”
End of US exceptionalism
It seems that the era of US exceptionalism is beginning to fade. For years, US leadership has been defined by strong GDP growth relative to the rest of the G10, outsized equity market returns, and the strength of the US dollar, with each of these pillars now being challenged, or reversed by recent events and the changing economic regime. As US profits growth levels out, we’re seeing earnings momentum pick up across Europe, Australasia, and the Far East (EAFE). EAFE equity markets remain attractively valued, with improving fundamentals and strong policy support, especially in China and Europe. Meanwhile, a softer dollar allows emerging market central banks to be proactive and supports returns in equities and local currency bonds, which have long been under-owned in the era of US exceptionalism.
Global to local
Diverging economic philosophies and a new “age of uncertainty” are shaking up the global investment landscape. These changes are putting pressure on global growth and inflation, while also challenging long-held assumptions about asset performance. Investors must now navigate a backdrop of weaker profiles for investment returns, potential de-ratings in select asset classes, heightened volatility, and increasing ambiguity around traditional safety assets. As correlations between countries begin to decline, we think there is a growing case for more targeted exposure to emerging markets in asset allocation. Local dynamics are likely to play a more significant role, notably between emerging markets like China and India. Frontier markets also look particularly interesting currently, offering superior growth and earnings potential, but with lower volatility, and less demanding valuations.
Joseph Little, Global Chief Strategist at HSBC Asset Management, added: “We’re seeing a recalibration in global markets as the pillars of US exceptionalism come under pressure. At the same time, global leadership is fragmenting, and country-specific dynamics are becoming more influential in shaping investment outcomes. With markets in Europe, Australasia, and the Far East showing improving fundamentals – and emerging markets benefiting from a weaker dollar and differentiated growth trajectories – investors must look beyond traditional benchmarks. In this new era, success will depend on recognising the shift from global convergence to local divergence and positioning portfolios accordingly.”
New asset classes to diversify portfolios
We think investors are going to have to get comfortable with uncertainty being a feature of the system, rather than a bug. This keeps volatility elevated, and weighs on risk-adjusted returns. Recent market activity has also seen correlations between US bond yields, stocks, and the dollar become increasingly erratic. It’s clear that policy uncertainty and growing concerns surrounding debt sustainability are starting to shake investor assumptions on the perceived haven properties of US assets.
This highlights the need to add other assets that could help build portfolio resilience. These can include other parts of global fixed income such as European duration and selective high-quality public and private credits. Other liquid risk mitigators – such as macro hedge funds and gold – can also provide diversification. And for global investors in US assets, currency hedging strategies may play an increasingly important part of their decision-making process.
Diversification through Alternatives
Alternatives have a key role to play in providing diversification and differentiated sources of return. Hedge fund strategies offer low correlation to broader market indices and may benefit directly from volatility. Infrastructure continues to offer stability, given its general insulation from the economic cycle, with growth opportunities in US energy and renewable expansion in Europe and North Asia. Private credit remains compelling amid bank retrenchment and heightened capital requirements, offering diversification, attractive yields, and stable income despite recent macro pressures. Meanwhile, private equity deal activity has proven resilient, with managers well-positioned to capitalise on thematic growth sectors like technology, healthcare, and energy.
Positioning for the New Rules
Looking ahead, the investment environment is likely to remain volatile, uncertain, and shaped by structural change. Investors who adapt to the “new rules” – embracing the shift from global to local, targeting differentiated exposures within emerging markets, and diversifying through new asset classes – will be better equipped for the months ahead.
