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Reasons To Be Fearful, Reasons To Be Cheerful
It was an eventful first half of the year, to say the least...
In January, the rise of DeepSeek was a wake-up call for the world, demonstrating that China is a major competitor to the US in AI and technology. The new US administration rapidly reordered geopolitical and economic relationships, implementing aggressive trade policies and tariffs.
On April 2, 2025—a date President Donald Trump proclaimed “Liberation Day”—the US administration announced the most sweeping tariff hike since the 1930s. This took the world (and markets) by surprise and led to retaliatory measures, fears of a global trade conflict, and financial markets turmoil. However, the US administration, under the pressure of the US Treasury market, decided to scale back on some of their plans. In early May, after talks in Geneva, China and the US agreed to lower tariffs, triggering a relief rally in financial markets.
On the geopolitical front, Russia’s war in Ukraine continued with no resolution in sight. NATO leaders agreed to increase defence spending to 5% of GDP in June 2025, signalling heightened concerns about Russia’s belligerence. The Israel-Iran conflict escalated, with a US bombing of Iran’s nuclear sites reported on June 23, 2025, injecting uncertainty into global markets and inflation outlooks.
The combination of trade tensions, geopolitical conflicts, and policy shifts created a volatile environment for financial markets. It is, however, remarkable to see the MSCI all Country index and the Nasdaq 100 both hitting a new all time high by the end of June. The resilience of earnings and the economy, coupled with the retro-pedalling by the US on tariffs, helped financial markets to record strong gains during the second quarter.
Still, the biggest loser of this first half of the year is the dollar. Another major development has been a shift in performance leadership with international equity markets, value style and emerging markets debt outperforming US equity markets, growth style, and US bonds. As in 2024, gold remains the best-performing traditional asset class.
As we enter the second half of 2025, what lies ahead? We believe there are reasons to be fearful, but also reasons to be cheerful.
The Downside Risks
Tariffs are paused, not removed — we’re not out of the woods. The 90-day pause ends in July, China’s lower tariffs expire in August, and both collide with the US debt-ceiling showdown. We expect volatility to remain elevated.
Rising global bond yields are another concern — pushing up mortgage rates, pressuring equity valuations, and threatening a carry trade unwind.
And geopolitical risks remain high, with tensions and conflicts ongoing in the Middle East and Ukraine.
Reasons To Be Cheerful
In the US, lower tariffs, lower taxes and lower rates could become the investors playbook for the second half of the year.
A trade deal with Europe and Japan looks likely, with some easing on China also possible.
In the US, the One, Big Beautiful Bill could pave the way for tax cuts.
Inflation is easing, giving the Federal Reserve room to cut rates. There is also room for the ECB to lower rates.
First quarter earnings beat expectations. Profits remained resilient, with companies holding on to staff and already approved capital spending.
In this context, G7 economies should avoid a recession.
How Do You Position Portfolios Amid Global Uncertainty?
Overall, in this environment, we believe bouts of volatility can be used as opportunities to add quality investments at better prices. We continue to favour diversification and broadening leadership as key investment themes. Peak trade tensions and volatility may be behind us, but don’t expect a smooth ride till the end of the year.
Our main recommendations to investors are the following:
First, stay invested, timing the market is risky. Those who tried to time the market in April and sold at the trough realised losses and were underinvested during the rebound.
Two, keep some international diversification, but US exceptionalism is NOT dead. The strongest companies are US-listed, tariffs and a weaker dollar also pressure regions like Europe.
Three, focus on quality and diversify across styles, sectors, and asset classes.
To Conclude, Here Are Our Top Investment Themes
Artificial Intelligence. Lower AI costs will drive adoption. Which stocks are going to benefit? Software (ETR:SOWGn) firms and companies building AI infrastructure.
Innovation beyond the Magnificent 7. Disruption is everywhere: robotics, autonomous vehicles, cybersecurity. And it’s global. DeepSeek shows China is a serious tech competitor to the US.
Stores of value. Assets that hold purchasing power amid inflation. Gold and Bitcoin are top performers year-to-date. In a world of rising debt and inflation, scarcity matters. We believe this theme will remain valid in the years to come.
On behalf of the entire investment team at Syz Bank, we wish you a relaxing summer and a successful second half of the year - with many reasons to be cheerful along the way.