Investment Strategy Focus November 2025

5 Key Macro Themes for 2026

1. The employment paradox: full employment albeit slower wage growth

Unemployment rates in the US, the eurozone and Japan have reached their lowest levels in 20 years.  According to Eurostat, more people than ever (almost 172 million) are in employment across the eurozone today. Yet wage growth is easing given a greater precarity of work in the “gig economy” and more  AI disruption. In this context, companies are generating structurally higher profitability as capital is favoured over labour. 

2. Lower interest rates, helped by cheap energy

Interest rates continue to fall worldwide, led by the US Federal Reserve, with a slew of emerging market central banks following suit. Slower wage and rental growth, easing energy prices and persistent political pressure should lead the Fed to prioritise growth over inflation in 2026. The decline in short-term interest rates to as low as zero (in Switzerland’s case) is mechanically pushing down long-term bond yields, despite ballooning debt levels and sizeable refinancing requirements of governments of major economies. Consequently, savers are now faced with lower returns from cash, sovereign bonds, and corporate credit. The hunt for yield is back on. 

3. Plentiful liquidity can drive stocks even higher

Several factors including plentiful macro liquidity from the US and China, lower long-term rates, strong corporate earnings, continued demand for shares via record buybacks, and buoyant retail investor optimism argue that global stock markets could march even higher in the year ahead despite stretched US stock valuations. 

In the fourth year of this market uptrend, we should also expect increasing volatility. We look for ways to participate in this modest upside potential in stocks, while limiting downside risk from market corrections

4. US dollar dominance is slowly eroding

The 12% depreciation of the US dollar in the first half of 2025 challenged the concept of “American exceptionalism”. Geopolitical volatility around tariffs, lower US interest rates, weakening Fed independence, and a prospective narrowing of the economic growth gap between the US and the rest of the world suggest that dollar weakness can persist. Investors are  heavily exposed to both US stocks and the dollar after 12 years of steady outperformance to the end of 2024.  However, 2025 marked an inflection point in this pro-US trend, with leadership shifting to World ex-US stocks and currencies. We advocate a rebalancing away from US stocks and the greenback towards the rest of the world.

5. Welcome to the new age of resource scarcity

After many years of living in a land of plenty where raw materials were easily accessible and relatively cheap, we are now in an age of resource scarcity. Three factors have ushered in this new era for commodities: i) rising demand for electricity and strategic metals owing to growing investment in technology and defence; ii) the inability to meet this rising demand given a historic underinvestment in new commodity mining and refining capacity; and iii) the greater use of resource supply serving as geopolitical leverage between countries. In sum, we see a new long-run bull market for commodities. 

Stock markets hit new highs, bond yields compress

Global stocks roar to new highs

Certain bullish themes, such as precious metals and nuclear, are cooling off after an impressive rally, Nevertheless, the global stock bull market, begun in October 2022, and now entering its fourth year, is showing no signs of coming to an end, despite continued geopolitical concerns. The MSCI World index continues to forge new all-time highs, up 6% in euros and 19% in US dollars over the year to date.

What makes this advance to new highs more robust in nature is the broad-based advance globally. Many regional and country indices are simultaneously marching to new highs at the same time across the US, Europe and Asia. This strong upwards momentum is not confined to large-cap stocks: in Europe, the MSCI Europe Small Cap index has also hit a new all-time high together with the US Russell 2000 and the MSCI Emerging Markets Small Cap index. 

Q3 earnings results season in the US starts brightly

Aggregate Q3 earnings momentum remains strong in the US, with an average positive surprise for S&P 500 companies (198 had reported by 29 October) of +2.2% on sales and +7.3% on earnings. According to Factset, a data and analytics provider, S&P 500 companies are now forecast to deliver 11% EPS growth for fiscal year 2025. Profit margins remain close to historic highs, with share buybacks yet to kick in post results to add a further element of demand for shares.

Elsewhere, although it is too early to judge Q3 results, we note a continued rise in 1-year forward earnings estimates both for European and Japanese stocks, thus supporting the move higher in these markets. 

Sovereign and corporate bonds post solid returns

Bullish momentum is evident in a variety of financial markets outside of stocks. Indeed, a host of commodities have performed well this year, as have hedge funds and listed real estate. Both sovereign and corporate bond markets have also delivered steady returns so far this year, with sovereigns doing at least as well as investment grade corporate bonds in the US and Europe.

Thanks to yield compression since January in the US and since March in Europe, benchmark 10-year sovereign bonds have returned 8% year-to-date in the US, 5% in the eurozone and 6% in the UK (all in local currencies).

This compression of yields has been achieved via lower inflation expectations and lower term premia, boosted by a steady fall in eurozone core inflation to 2.4% and in US Supercore CPI (CPI for core services less housing) to 3.2% respectively.

Following this compression in both sovereign and corporate bond yields since March, we would now advise only opportunistic buying on weakness for new money. Recall that long-term bond returns are best predicted by the current yield – on that basis, US and eurozone government bonds do not offer a particularly  attractive long-term return potential today. 

Private credit concerns: what to watch 

Recent US bankruptcies have caused concern in private credit markets

The recent bankruptcies of US auto part suppliers Tricolor and First Brands have raised questions about the risks of investing in private credit funds. JP Morgan Chase CEO, Jamie Dimon, subsequently added to these concerns with his comment relating to private credit during the JP Morgan quarterly earnings call: “When you see one cockroach, there are probably  more”.

Investors are grappling with the following key question: Are these bankruptcies specific to these companies or to the auto parts sector, or are they symptoms of a wider problem hiding in certain segments of private credit? What makes investors perhaps more nervous is the relative lack of transparency of private credit funds, and the  lack of widespread credit ratings for the underlying corporate loans held in these funds.

The private credit market (dominated by the US) has more than tripled in size from USD 500bn in 2020 to an estimated  USD 1.7-2.1 trillion as of early 2025, according to data provider Prequin. It is natural that investors suspect that to feed this growth in private credit demand, that fund providers have accepted exposure to loans with weaker covenants and companies with potentially weaker cash flow and balance sheets. 

In our view, this argues for selectivity in choosing which private credit fund providers to work with, and for a focus towards Europe, where loan covenants tend to be stricter than in the US.

We are watching to see if private credit stress will spread wider through financial markets

To judge whether these concerns are spreading from private credit markets to elsewhere in the financial system, we are monitoring five public market indicators:

a) US leveraged loan ETFs;

b) US business development ETFs;

c) Shares of listed private credit and private equity fund management companies;

d) US regional bank ETFs;

e) US corporate bond high yield spreads.

In each of these indicators, there was a notable reaction to the Tricolor and First Brands announcements from 24 September to mid-October.  However, since then we have seen stability in each of these measures.

As an example, the US high yield credit spread has risen a mere 0.3% from September lows to 2.8% at present, still far from the year high of 4.4% achieved in April. Similarly, each of the shares and ETFs we monitor remain far above their April lows. 

Our conclusion is that there is little evidence of a broadening of financial stress in public markets from these private credit issues at this stage. 

The impact of “Sanaenomics” on Japanese Equities 

A Japanese paradox

Having reached a coalition with the Japan Innovation Party (JIP), Sanae Takaichi, President of the Liberal Democratic Party (LDP), has been elected Japan’s first female prime minister. The appointment is somewhat a paradox: while it could be viewed as a symbolic event representing progress in gender equality, the reality may be very different. Takaichi-san is a staunch conservative, opposing fundamental reforms that are central to Japan’s gender equality debate. Like her mentor and a former prime minister of Japan, Shinzo Abe, she claims to empower women in the workforce yet refuses to confront the entrenched structural and cultural biases that impede gender equity in Japan. The share of female cabinet members (16%), including her, might be a proof in case. We should expect a rather conservative albeit expansionary fiscal policy in Japan going forward.

Fiscal stimulus ahead

Since the LDP-JIP coalition does not command a majority, political support needs to be brokered on a case-by-case basis. Such a backdrop often encourages horse trading about political projects. These projects are usually related to spending more money and should thus encourage fiscal expansion.

Overall, we expect a balanced pro-growth and proactive fiscal strategy thus strengthening our constructive view on Japanese equities.

Building Takaichi’s castle

The need for fiscal measures to support households that have been hit by soaring (rice) prices (see Chart 1) and to counter US tariff hikes is broadly recognised across the political spectrum. This should help Ms. Takaichi to pursue an expansion in fiscal policies against fiscal hawks within the LDP. Among the proposals listed in the coalition agreement are a gasoline tax cut and an increase of the minimum personal income taxable base. We anticipate that reductions in social security contributions will likely be implemented.

The two arrows of “Sanaenomics”

Looking at Japanese equities, valuations are no longer obviously cheap. However, we think there are two pillars driving a potential further re-rating. 

Acceleration of earnings growth…: We expect the growth initiatives advocated by the LDP and JIP to enhance expectations for corporate earnings growth. A higher EPS growth rate should also support higher P/E multiples.

…and a renewed focus on corporate reforms: Takaichi-san is a strong advocate of corporate governance reforms with a special focus on retained earnings. If her government successfully intensifies these reforms, Japanese company ROEs could potentially rise. In such a scenario, the capital costs should consequently fall. Assuming they do by 50 bps, the P/E would again rise by 1x.

Precious metals: Time for a breather 

A historically sharp price rally for precious metals 

Precious metals have had an impressive rally year-to-date: gold +53%, silver, platinum and rhodium +60%-70% and palladium +54%. Since early 2024, the gold price has doubled.

In recent years, the rising gold price has been successively driven by a) geopolitical tensions, b) high inflation, c) gold purchases by central banks and d) the flight of investors to this safe-haven investment in uncertain times (policy uncertainty, trade war, military tensions, increasing government debt, and Trump's attempt to influence the Fed). On top of the traditional appetite of Asian investors for physical gold bars and coins, we have seen a huge inflow of Western investors since mid-2024 via gold trackers.

Other precious metals, such as silver, platinum and palladium had lagged the gold rally until May 2025, but had been making an impressive catch-up since June. This was due to a substitution for gold in the jewellery sector (as gold had become too expensive), the growing demand for industrial applications (electronics, data centres, solar panels, aerospace and defence, etc.), increased investor appetite for mixed precious metals trackers, as well as a tight supply. There has not been a huge investment in new mining capacity in the last decade and there have been temporary supply disruptions in South Africa's platinum mines and silver mines this year. However, the hyperbolic rise in the price of silver and platinum was also driven (or accelerated) by short covering (where investors who have shorted these metals at lower prices have to buy back to close their shorts).

We downgrade our view on precious metals from Positive to Neutral

After holding a Positive view on precious metals for a long time, we are now downgrading our view Neutral. We think that the market is currently overbought and that there may be some profit-taking and a correction in the short term. In the longer term, we see further upside potential for gold and other precious metals due to tight supply and structurally increased investor interest. We adjust our 12-month price targets just above recent highs: gold at USD 4,400/ounce  (from USD 4,000) and silver at USD 55 (from USD 50). But after the sharp rally, the market will probably have to consolidate and there will be some better entry opportunities. 

Some drivers for flight to safe-haven could fade

Some drivers for the flight to safe-haven investments could fade in the coming weeks. Trade tensions could ease if President Trump and Xi Jinping were to sign a trade deal at the end of this month. There are rumours that the US government shutdown could end soon. After the truce in Gaza, President Trump is working on a resumption of negotiations between Ukraine and Russia. If the respective peace processes for Gaza and Ukraine move in the right direction, it could reduce geopolitical uncertainties. And with regard to fears of undermining the Fed's independence, political pressure will ease in the near term because the Fed plans to cut rates anyway. We believe that the prospect of lower Fed rates is already sufficiently priced in.