Asia Mid-Year Outlook 2025 in five minutes

W: Welcome to J.P. Morgan Private Bank’s Mid-year outlook. In 5 minutes, Alex and I will address some top-of-mind questions, hopefully provide some guidance on where we see macro and markets, and leave you with some investment ideas. Let’s get started. First, can the U.S. avoid a recession?

A: Our base case is that the U.S. won’t enter a recession, and disinflation can continue. Tariffs have increased from low levels to above 25% on Liberation Day, potentially causing a recession if sustained. We do not expect tariffs to remain that high, but Trump has avenues to implement them through other means. We see tariffs settling at around 10%, equating to roughly a tax increase of 1% of GDP, which is not enough to cause a recession, but will likely slow growth. For now, consumer spending and hard economic data remain resilient. With this backdrop, when can the Fed start to cut rates?

W: We see 2 cuts at end-2025 and 2 more in 1H 2026. The Fed sees risks of higher inflation and lower growth, but may wait for more data visibility before cutting. On deficit concerns, total debt in the U.S. has remained relatively stable, with an expanding government deficit while corporates and households deleverage. Markets are reflecting long-term debt concerns with higher long-end yields while the short-end has been anchored. In fixed income, we favor short-to-intermediate duration for carry over more volatile longer duration. Next – can U.S. tech keep winning?

A: We have a positive view on U.S. tech, which supports the outlook for U.S. equities. Q1 Mag-7 earnings outperformed, while valuations adjusted for growth remain reasonable. Besides tech, we like financials. High interest rates are favorable for banks and deregulation may reduce capital requirements while supporting dealmaking. We also like utilities, which presents defensive growth paired with A.I.-led power demand, and valuations are undemanding. Next: how much weaker can the dollar go?

W: The dollar has declined by 10% this year, but long-term valuations are still elevated. The fundamental driver is cyclical, with U.S. growth catching down to other markets. There are also large dollar positions built up over time by foreign investors, which are starting to unwind. For dollar diversification, we can reference central banks and equity indices on how to allocate currencies. Investors can consider investing around 30% into non-USD assets, into gold (where we see prices exceeding 4,000 by year-end), and European and Japanese equities. Speaking of non-U.S. markets – is the outlook for China improving?

A: China’s cyclical outlook has become less bearish, with housing stabilizing and discretionary spending recovering. Trade remains uncertain with negotiations ongoing, but there could be support from AI-related industrial expansion. Equity valuations have returned to average levels, so markets are less attractive. Investors are selectively rewarding AI names, not turning broadly bullish across sectors. We are neutral on the market, and focused on the internet and consumer spaces. Finally, putting all of this together, how should a portfolio look in today’s market?

W: With a lot more market volatility, diversification is key. Stock-bond correlations have been unstable and sometimes positive, meaning that the natural diversification between stocks and bonds may be less reliable today. A traditional 60/40 portfolio, while still a core allocation, can be complemented by uncorrelated alternative assets such as hedge funds and real assets like infrastructure. Amid weak capital market activity, secondary private equity can access quality assets at attractive valuations. Thank you, and please speak with your J.P. Morgan advisor on how to implement these ideas into your portfolio.