Macroeconomics and politics

Investment Perspectives H2 2025 Outlook: Steady sailing in choppy waters

8 min read 11 Jun 25

Investment Perspectives

As we move into the second half of 2025, investors are navigating a shifting landscape shaped by political, economic and monetary developments. The introduction of sweeping US tariffs has fuelled increased uncertainty in financial markets, but the broader picture includes concerns about government debt levels and economic growth.

One possible consequence of a protectionist US trade policy could be weaker confidence in US markets. In the first half of this year, we observed signs that investors were re-evaluating the size of existing US allocations and were open to shifting capital to other destinations such as Europe.

In this Mid-Year outlook, M&G’s Chief Investment Officers (CIOs) from Equities, Fixed Income, and Private Markets share their insights on how an active, long-term perspective could help investors steer through today’s challenging environment and where they see the most promising opportunities.

Equities: Time in the market, rather than timing the market

Equity markets may have recovered from the initial shock following President Trump’s tariff announcement, but Fabiana Fedeli, CIO of Equities, Multi Asset, and Sustainability, cautions against complacency. Trade negotiations are still in early stages, and uncertainty remains high.

A notable development that Fedeli highlights is a growing recognition that the US market is no longer the only game in town. Although she believes there is still no alternative that would warrant a complete exit from US assets, she sees options for investors to diversify their portfolios.

Europe is emerging as a strong contender – increased defence spending and Germany’s €500 billion infrastructure fund could have a positive impact on companies across the continent in sectors spanning defence, construction, utilities and industrials.

Fedeli also points to opportunities in AI-related semiconductor firms, which could benefit from continued resilient AI capital expenditure trends, and in India, where domestic-focused companies are less exposed to global trade tensions.

At a time of elevated macroeconomic uncertainty, Fedeli suggests investors are best served focusing on individual companies, seeking to identify the winners and avoiding the losers.

As the speed of market movements increases, creating additional complexity for investors, Fedeli emphasises that time in the market is what matters, rather than trying to time the market.

The data backs this up: missing just a handful of the best-performing days in the market can significantly dent investors’ long-term returns. Given that the market’s stellar days often follow the biggest ‘down’ days, timing the market is a tricky feat. Staying invested counts.

Looking ahead, Fabiana will be watching for signs of an economic slowdown and seeking to weather the uncertainty by investing in specific stocks rather than broader equity markets.

Fixed Income: In uncertain times, it pays to be active

Turning to the world of bonds, Andrew Chorlton, CIO of Fixed Income, sees the current environment as one where active management can truly shine. The true impact of Trump’s tariff and tax policies may become apparent in due course. Amid uncertainty about inflation, rising debt levels and a potential recession, Chorlton advocates an active approach, which provides investors with the potential to adapt to and exploit the changing landscape.

While the US is grappling with uncertainty, the fortunes of other regions are diverging. Chorlton points out that in Europe we are starting to see differences in economic performance, highlighting Germany’s bold economic stimulus plans. Meanwhile, many emerging markets have successfully tamed inflation and reduced interest rates. With attractive real yields and relatively strong growth prospects, he argues these regions offer opportunities.

Corporate bond spreads remain tight – too tight, in Chorlton’s view, given the potential risks. He advocates for a defensive stance, favouring bonds from higher-quality borrowers. The goal is to protect capital should risks increase, while keeping “dry powder”, or resources, ready to invest at more attractive entry points. In the meantime, he believes investors are being paid a relatively attractive yield in government bonds and high-quality asset-backed securities (financial instruments backed by a pool of assets).

His takeaway: in a world where uncertainty is the only constant, being nimble and selective is key. Active investors who adopt a patient approach can wait for interesting opportunities to arise where they are sufficiently rewarded for the risks taken.

Private Markets: Resilience in uncertain times

Private markets have not been immune to the effect of Trump’s tariffs. The current elevated levels of market uncertainty and investor apprehension is unhelpful for market confidence and deal flow. However, Emmanuel Deblanc, CIO of Private Markets, believes that it is at times such as these that the value of long-term patient capital, characterised by private markets, really comes to the fore.

Recent developments may prove positive for certain private market strategies. For instance, private credit may benefit as banks continue to pull back from riskier lending, extending the ongoing migration from traditional to private lenders and boosting both volumes and profit margins. Real estate is likely to continue to recover, albeit more slowly, supported by strong demand and limited supply.

Private equity potentially faces more headwinds, especially if higher tariffs lead to persistent inflation and elevated interest rates. This could make financing more expensive and exits more difficult.

Still, Emmanuel believes the secular growth drivers behind private markets – such as the shift toward alternative credit and infrastructure investment – remain firmly in place.

His message is clear: private markets offer a valuable source of long-term, patient capital. They may not be immune to market shocks, but, in his view, they are well-positioned to weather them.

Conclusion: Staying the course

The second half of 2025 promises to be anything but calm and predictable. Yet, as the CIOs make clear, uncertainty doesn’t mean paralysis. It means being disciplined, selective and responding to opportunities created by market turbulence. Whether it’s diversifying beyond US equities, seeking yield in emerging markets, or leaning into the resilience of private assets, there are potential routes through which investors can navigate the current market environment.

Above all, the CIOs reinforce a timeless investing principle: success often comes not from trying to predict the next move, but from staying invested, staying focused, and staying flexible.

Investments involve risks and may not be suitable for all investors. Past performance is not indicative of future results. The value of investments may go up or down and is not guaranteed. You may not recover the full amount you invested. The views expressed in this document should not be taken as a recommendation, advice or forecast. If you are in any doubt about the contents of this document, you should seek independent professional advice.

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