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We favor phasing into global equities and balanced portfolios, an approach that has historically outperformed cash. The recent rebound has underlined that investors who retreat from risk assets during periods of volatility risk missing out on rapid rebounds as market sentiment recovers.

Looking ahead, uncertainty over the trade and US fiscal policy outlook may trigger renewed market volatility in the near term. Investors can use such periods to progressively build long-term exposure. We anticipate further gains for equities into 2026 as the policy environment becomes more stable, structural earnings growth continues, and US interest rate cuts likely resume. In our base case, we see the S&P 500 reaching 6,400 by June 2026.

Beyond this broad approach, we see particular upside for the following areas of the equity market:

AI investment spending and adoption continues to be a key driver of our positive view on the US IT sector. Despite fears of a slowdown, results and commentary during the first-quarter earnings season confirmed that supportive trends remain intact. We believe AI continues to have a long runway of growth ahead. That being said, the likely imposition of semiconductor tariffs later this year could cause some volatility. But the sector is of high quality and generates the highest return on capital across all sectors.

Our equity strategy team rates health care Attractive. A combination of policy clarity (over time), attractive valuations, and potential upside to earnings estimates for select companies should lead to a rebound in the sector, in our view. Promising new drug therapies in large untapped end-markets—such as obesity and Alzheimer's—offer an offset to patent expirations on several important products. The sector's defensive characteristics should offer ballast in a portfolio if the economy slows further.

While we maintain our Neutral stance on the region overall given the ongoing uncertainties around the outlook for tariff policy and economic growth, we continue to identify select single-stock opportunities in Europe that should benefit from emerging trends.

We see the following catalysts and corresponding trends in Europe: (i) more defense spending overall, (ii) a new German government that puts a greater emphasis on fiscal stimulus, (iii) a possible Russia/Ukraine ceasefire/peace deal, and (iv) a trade war that typically leads to higher market volatility. Please refer to our latest "Six ways to invest in Europe" list for further details.

We recommend investing in a diversified manner across all six segments. The sub-themes are:

1. Defensive champions that benefit from increased market volatility,
2. Post-election beneficiaries in Germany,
3. Rising security investments (defense and cyber),
4. Rebuilding Ukraine and recovery in Eastern Europe,
5. Beneficiaries of lower energy costs in Europe,
6. Globally active European companies with limited global trade risks.

We think European small- and mid-cap stocks trade at attractive valuations; the MSCI Europe SMID trades close to its largest forward P/E discount to the MSCI Europe Large in over 20 years. We expect European real GDP growth to accelerate in 2025. This tends to favor smaller companies that are typically more sensitive to the domestic economic backdrop and are more dependent on bank lending and floating-rate debt. In addition, we think small- and mid-caps benefit from supportive structural growth outlook for industrials (the largest sector in the index).

The overall backdrop has become more constructive, with tariff de-escalation reducing tail risks in the region. However, at the time of writing, markets have already priced in plenty of tariff optimism and few downside risks. From here, we think broad upside could be constrained by where tariffs eventually settle, residual policy uncertainty, and the sharp valuation recovery to date. We therefore continue to hold a Neutral view on regional equities, but see a range of select alpha opportunities where the risk-reward looks more attractive.

China tech remains one of our favored industry sectors. The recently concluded earnings season saw beats on both the top and bottom lines, highlighting the sector’s effective monetization efforts and strong profit engines. We expect these benefits to persist over the next two years and believe that current valuations do not fully reflect the sector’s strong earnings growth prospects (+30% in 2025/26).

We also view Taiwan’s equity market as attractive. Global AI trends remain supportive, highlighted by recent deal commitments that underscore the broadening demand from new entrants like sovereign and enterprise cloud providers. Overall, we expect MSCI Taiwan earnings growth of 8% for 2025 and 9.5% for 2026. The market’s valuation still looks attractive, despite the recent rebound. We see further tailwinds from strong AI revenue growth (projected at +45% CAGR over the next five years), easing geopolitical concerns, and structurally rising pricing power and return on equity.

Finally, we like the Indian equity market. India remains at the front of the queue to strike a trade deal with the US before the 90-pause ends. We expect earnings per share growth to improve from mid-single-digits toward low- to mid-double digits for both FY26 and FY27.