Now is the time for investors overweight the US to rotate into undervalued stocks in Asia and emerging markets, says Martin Hennecke, head of Asia investment advisory at St. James’s Place.
Although the S&P 500 rallied to an all-time high last week, this highlights the volatility of global markets in 2025 given the ongoing geopolitical instability and trade tariff uncertainty, Hennecke said, noting the US budget deficit in the first eight months of this fiscal year stood at $1.36trn, prompting the IMF and Congressional Budget Office to voice concerns.
Global investors overweight the US would be well placed to broaden out geographically as well as across investing styles, balancing growth with value, he added, warning of concentration risk in the US tech sector in particular.
“For investors currently under-positioned in emerging markets equities generally, and China in particular, this might be a sensible time to consider broadening out, as the easing of investors’ current largest worry following the temporary reduction of China tariffs could shift attention to recent positive fundamentals such as a pick-up in retail sales,” Hennecke said, adding that equity valuations still hover close to historically high discounts versus the US market.
Further, significant Chinese stimulus measures and high household bank savings balance suggest significant potential for a consumption rebound once confidence stabilises, he said.
Hennecke cautioned against making “emotional decisions” in the face of volatility, such as panic selling stocks that are no longer popular, speculating where the bottom is to buy in at an ‘opportune’ time, selling quality assets because their share prices are down, and going into cash to downgrade portfolio risk level temporarily.
“Downgrading portfolio risk level until things feel ‘safe again’ implies lower return potential and clients may miss rebounds,” he said. “Once bad news headlines have dissipated and it feels safe again, chances are that market levels will already be higher, reflecting the better sentiment, and the client would then have to buy back in at a higher price to revert to the original portfolio. This could increase downside risk in the next correction, given higher prices paid.”
