Navigating the New Normal

HONG KONG SAR - Media OutReach Newswire - 24 June 2025 -Today, KGI has released its 2025 Mid-Year Market Outlook. Looking back over the first half of the year, Trump officially took office as President of the United States and started a trade war. At one point, he even threatened to levy tariffs on China of more than 100%, triggering massive market fluctuations. Since then, many countries have entered negotiations with the U.S., and positive signals have emerged. How will the ongoing tariff war affect global economic development? How will the economic uncertainty created by Trump's policies influence interest rate trends? How will China respond to the increasingly tense trade relationship? And how will China achieve economic growth targets amid external economic instability? Under this backdrop, for the second half of the year, we maintain the "ACE" strategy：

1. Alternatives: Gold and other alternative assets are expected to be inflation-resistant and have lower correlation with traditional stocks and bonds.
2. Credit Selection: Maintain a preference for high-grade bonds, as the market still presents opportunities to lock in yields.
3. Elite Stocks: Diversify investment in quality stocks, balancing the allocation between cyclical and defensive stocks.

Cusson Leung, Chief Investment Officer at KGI, says: "In terms of asset allocation, considering the economic and political developments in the second half of the year, investors can continue to follow the ACE strategy: A is Alternatives. The fiscal conditions of multiple governments have sparked controversy, coupled with central banks diversifying asset allocations and geopolitical instability, which will be favorable to gold prices. C is Credit Selection. We expect downside risks to the economy, thus maintaining a preference for quality bonds. Corporate bonds will provide opportunities to lock in yields. E is Elite Stock. Tariff expectations are anticipated to impact corporate earnings; cyclical stocks and defensive stocks can be balanced in the allocation. Outside the United States, focus on countries with minimal tariff impact or those that have already reached agreements." Macro & U.S. Markets In 2H2025, the global economy will enter a slowdown mode, particularly in emerging markets, with the slowdown being most pronounced in the United States among mature markets. In the first half of the year, U.S. companies stockpiled goods in anticipation of tariff wars, resulting in decent economic performance. However, this situation will not continue into the second half, with GDP growth rates potentially falling below 1%, averaging around 1.35% for the year. The slowdown in the Eurozone and the UK will be less pronounced than in the U.S., but the negative impacts of the trade war cannot be underestimated. The economic outlook for Japan and China is also bleak. In the first half of the year, the U.S. economy shone due to strong demand, but this demand is expected to wane in the second half, leading to weaker economic data. The uncertainty of Trump's policies affects consumer confidence and corporate orders, with labor market data showing a downward trend, further impacting wages and consumption. The Fed may cut interest rates by 25 basis points in the fourth quarter of 2025 and continue to lower rates by 50 to 75 basis points in 2026. As for U.S. stocks, the likelihood of entering a bear market this year is low, but a decline is possible in the third quarter, with annual profit estimates dropping from 14.1% to below 9%. Investors are advised to focus on defensive and high-quality stocks to weather the economic downturn. In terms of bond investments, the weakening U.S. economy is expected to drive bond yields lower, with Treasury yields projected to fall to 4.0%-4.3% from the latter half of the third quarter to the fourth quarter. It is recommended to invest in higher-quality investment-grade corporate bonds and consider transitioning to non-investment-grade corporate bonds when the economy hits bottom. James Chu, Chairman at KGI Securities Investment Advisory, says:"The easing of the trade war has reduced the risk of a U.S. economic recession, but its uncertainty has already affected economic confidence and will put pressure on hard data in the future. The recent rise in the stock market has brought valuations back to high levels. Investors need to be aware of the expiration of the tariff suspension and the subsequent economic and corporate earnings revisions that could bring volatility." Mainland China and Hong Kong Markets Since early 2025, China's economy has shown marginal improvement amid multiple internal and external factors. In the trade sector, after reaching a 90-day short-term tariff exemption agreement with the United States, market...