A more selective market environment.
The broader backdrop is best described as resilient but constrained. Growth has not weakened enough to justify a clear duration rally, while inflation remains sticky and policy settings remain restrictive across key markets. This leaves portfolios dependent on disciplined asset allocation, quality income and targeted risk-taking. Technical trends are positive in parts of the equity market, particularly Asia and emerging markets, but those trends are narrow and heavily linked to the same AI and semiconductor cycle. Valuations also matter: the US offers the strongest earnings fundamentals but at a full price, Japan remains technically strong but no longer valuation-supported at overweight, and Europe remains too mixed to justify more than a neutral stance.
Equity Markets: Different stories by region
US Equities
US equities remain neutral. Earnings strength is real, supported by strong margins and the broadest upgrades of any major market, but the price paid for that growth is high. Market leadership remains concentrated in a small group of mega-cap AI companies, making the AI capital-expenditure cycle the key swing factor.
What this means for portfolios: US exposure remains important, but portfolios should avoid over-concentration in a narrow group of mega-cap winners and look for broader market breadth where available.
UK and European Equities
The UK remains neutral and continues to offer defensive participation rather than a domestic growth story. It is the cheapest developed market and benefits from global revenue exposure, energy, resources, financials, and healthcare, with a weaker pound supporting overseas earnings. Europe ex-UK also remains neutral: earnings recovery is present but narrow, valuations are not cheap, and regional performance remains mixed as policy tightens into weak growth.
What this means for portfolios: UK and European exposure should be balanced and selective, with a preference for companies that can generate global cash flows rather than relying on domestic economic acceleration.
Asia, Emerging Markets and Japan
Asia ex-Japan shows the strongest equity trend in the book, but it is a momentum call rather than a low-risk one. The region is heavily concentrated in Korea and Taiwan, with semiconductor and AI exposure driving much of the earnings strength. Emerging markets have also been lifted to neutral on the back of broad absolute momentum, but the same Korea and Taiwan semiconductor engine means performance across both regions is increasingly driven by the same technology cycle. Japan has been moved from overweight to neutral: the technical setup remains strong, but valuation support has faded as price-to-book multiples have moved to decade highs.
What this means for portfolios: Asia and emerging-market exposure offers upside, but portfolios should recognise that much of the opportunity is concentrated in a narrow technology cycle rather than broad regional growth.
Commodities: Diversification and inflation protection
Commodities are the sole conviction overweight. The existing allocation has been retained rather than materially expanded. With Brent materially lower over the quarter but still positive year to date, the allocation is no longer simply an energy-shock hedge. It now acts as a carry-plus-diversification trade, supported by tight supply, improving Chinese producer prices and factory expansion. Agriculture and base metals lead within the basket, while gold looks expensive and oil has lagged.
What this means for portfolios: Commodities remain a useful diversifier against sticky inflation and geopolitical risk, but exposure should remain measured because demand signals remain uneven and volatility can rise quickly.
