Asset		Tactical view	Commentary
Equities
United States			We are overweight given our positive view on the AI theme. Valuations for AI beneficiaries are supported as tech companies keep beating high earnings expectations. We think upbeat sentiment can broaden out. Falling inflation is easing pressure on corporate profit margins.
Europe			We are underweight relative to the U.S., Japan and the UK – our preferred markets. Valuations are fair. A growth pickup and European Central Bank rate cuts support a modest earnings recovery. Yet political uncertainty could keep investors cautious.
U.K.			We are overweight. Political stability and a growth pickup could improve investor sentiment, lifting the UK's low valuation relative to other DM stock markets.
Japan			We are overweight. A brighter outlook for Japan’s economy and corporate reforms are driving improved earnings and shareholder returns. Yet the drag on earnings from a stronger yen and some mixed policy signals from the Bank of Japan are risks.
Emerging markets			We are neutral. The growth and earnings outlook is mixed. We see valuations for India and Taiwan looking high.
China			We are modestly overweight. China’s fiscal stimulus is not yet enough to address the drags on economic growth, but we think stocks are at attractive valuations to DM shares. We stand ready to pivot. We are cautious long term given China’s structural challenges.
Fixed income
Short U.S. Treasuries			We are underweight. We don’t think the Fed will cut rates as sharply as markets expect. An aging workforce, persistent budget deficits and the impact of structural shifts like geopolitical fragmentation should keep inflation and policy rates higher over the medium term.
Long U.S. Treasuries			We are neutral. Markets are pricing in sharp Fed rate cuts and term premium is close to zero. We think yields will keep swinging in both directions on incoming data. We prefer intermediate maturities less vulnerable to investors demanding greater term premium.
Global inflation-linked bonds			We are neutral. We see higher medium-term inflation, but cooling inflation and growth may matter more near term.
Euro area government bonds			We are neutral. Market pricing reflects policy rates in line with our expectations and 10-year yields are off their highs. Political uncertainty remains a risk to fiscal sustainability.
UK Gilts			We are overweight. Gilt yields offer attractive income, and we think the Bank of England will cut rates more than the market is pricing given a soft economy.
Japan government bonds			We are underweight. Stock returns look more attractive to us. We see some of the least attractive returns in JGBs.
China government bonds			We are neutral. Bonds are supported by looser policy. Yet we find yields more attractive in short-term DM paper.
U.S. agency MBS			We are neutral. We see agency MBS as a high-quality exposure in a diversified bond allocation and prefer it to IG.
Short-term IG credit			We are overweight. Short-term bonds better compensate for interest rate risk. We prefer Europe over the U.S.
Long-term IG credit			We are underweight. Spreads are tight, so we prefer taking risk in equities from a whole portfolio perspective. We prefer Europe over the U.S.
Global high yield			We are neutral. Spreads are tight, but the total income makes it more attractive than IG. We prefer Europe.
Asia credit			We are neutral. We don’t find valuations compelling enough to turn more positive.
Emerging market - hard currency			We are neutral. The asset class has performed well due to its quality, attractive yields and EM central bank rate cuts. We think those rate cuts may soon be paused.
Emerging market - local currency			We are neutral. Yields have fallen closer to U.S. Treasury yields, and EM central banks look to be turning more cautious after cutting policy rates sharply.

Asset	Tactical view	Commentary
Equities
Europe ex UK		We are underweight relative to the U.S., Japan and the UK – our preferred markets. Valuations are fair. A growth pickup and European Central Bank rate cuts support a modest earnings recovery. Yet political uncertainty could keep investors cautious.
Germany		We are neutral. Valuations and earnings momentum are supportive relative to peers, especially as global manufacturing activity bottoms out and ECB rate cuts ease financing conditions.
France		We are underweight given modestly supportive valuations. The result of France’s parliamentary election could impact business conditions for French companies. Yet only a small portion of the revenues and operations of major French companies are tied to domestic activity.
Italy		We are underweight. Valuations dynamics are supportive relative to peers, but recent growth and earnings outperformance seems largely due to significant fiscal stimulus in 2022-2023 that cannot be sustained over the next few years.
Spain		We are neutral. Valuations and earnings momentum are supportive relative to other euro area stocks. The utilities sector looks set to benefit from an improving economic backdrop and advances in AI.
Netherlands		We are underweight. The Dutch stock markets' tilt to technology and semiconductors, a key beneficiary of higher demand for AI, is offset by relatively less favorable valuations and a weaker earnings outlook than their European peers.
Switzerland		We are underweight, in line with our broad European view. The earnings outlook has brightened, but valuations remain high versus other European markets. The index’s defensive tilt will likely be less supported as long as global risk appetite holds up, we think.
UK		We are overweight. Political stability and a growth pickup could improve investor sentiment, lifting the UK's low valuation relative to other DM stock markets.
Fixed income
Euro area government bonds		We are neutral. Market pricing reflects policy rates in line with our expectations, and 10-year yields are off their highs. Political uncertainty remains a risk to fiscal sustainability.
German bunds		We are neutral. Market pricing reflects policy rates broadly in line with our expectations, and 10-year yields are off their highs.
French OATs		We are neutral. The EU has already warned France for breaching fiscal rules and had its sovereign credit rating downgraded earlier this year. Elevated political uncertainty, persistent budget deficits and a slower pace of structural reforms remain challenges.
Italian BTPs		We are neutral. The spread over German bunds looks tight given its budget deficits and debt profile, also prompting a warning from the EU. Other domestic factors remain supportive, with growth holding up relative to the rest of the euro area and Italian households showing solid demand to hold BTPs at higher yields.
UK gilts		We are overweight. Gilt yields offer attractive income, and we think the Bank of England will cut rates more than the market is pricing given a soft economy.
Swiss government bonds		We are neutral. The Swiss National Bank has been cutting policy rates this year amid reduced inflationary pressure. But it is unlikely to cut rates much further from here.
European inflation-linked bonds		We are neutral. We see higher medium-term inflation, but cooling inflation may matter more near term. Short-term breakeven inflation rates fell further after recent inflation data, making euro area inflation-linked bonds less attractive.
European investment grade credit		We are neutral European investment grade credit, with a preference for short- to medium-term paper for quality income. We maintain our regional preference for European investment grade over the U.S. given spreads are not as tight.
European high yield		We are overweight. We find the income potential attractive. We still prefer European high yield given its more appealing valuations, higher quality and lower duration than in the U.S. Spreads compensate for risks of a potential pick-up in defaults, in our view.

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