Global Equity Pulse

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In focus: European banks remain attractive

The outlook for European banks appears positive to us, and we intend to stay invested in the sector following its year-to-date (YTD) rally. Factors supporting our view include attractive valuations, sustained earnings growth and a relatively conducive regulatory environment, among others.

Our confidence was reinforced during a recent European financials conference held in Berlin, where our financials analyst detected a similarly high level of enthusiasm for European banks. Meetings with multiple bank managements during the conference also revealed a commitment to capital returns, further strengthening the investment case.

Investment outlook

We believe the US market currently stands near fair value and may be vulnerable to potential negative surprises in the second half of the year. Attention to fundamentals will remain crucial, in our view. While we maintain a positive outlook on the earnings trajectories of our US holdings, undervalued, lower-leverage companies may be more resilient, and defensive companies—particular in the health care sector—could look more appealing. In Asia, a growing number of US trade agreements has boosted sentiment. Chief among them is the US-Japan trade deal, which we believe will remove recessionary risks faced by Japan while affirming our investment thesis on return on equity (ROE) enhancements and economic normalization. Meanwhile, we stay confident about European equities, which beckon with structural tailwinds, valuation support and underappreciated breadth. We see compelling opportunities in domestically focused European companies, particularly those poised to benefit from regional stimulus and structural reforms.

In North America, while the second quarter saw increased volatility from concerns over the impact of tariffs on economic growth and inflation, the US market quickly dismissed those concerns, rallying back to all-time highs. US equity markets were then boosted in July on earnings reports from major companies and optimism over the deals struck in US trade talks with Japan and the EU. We believe the US stock market currently stands near fair value, lacking potential upside in the short run and vulnerable to potential negative surprises in the second half of the year.

In Asia Pacific, equities largely gained in July as the United States finalized trade agreements with a growing number of regional economies, reducing uncertainties surrounding US tariffs and trade disruptions. Chief among these is the US-Japan deal, which sets a 15% tariff on Japanese imports, including automobiles and auto parts—lower than what’s levied on other major car exporters. We believe the deal largely removes the recessionary risks faced by Japan and affirms our positive view on Japanese equities. Importantly, the path is set for the Bank of Japan (BoJ) to potentially accelerate monetary policy normalization and the economy remains firmly on track to exit from three decades of deflation. While the recent Upper House election defeat of the ruling Liberal Democratic Party may complicate future policy changes, we think there is ample room to reach political consensus on these positive regime shifts.

In Europe, after a decade defined by crisis and chronic underperformance, equities are showing signs of structural renewal. The narrative of a stagnant, crisis-prone continent is giving way to one of resilience, capital investment, and sectoral leadership. As of late July 2025, the STOXX Europe 600 has delivered solid year-to-date gains, supported by improving fundamentals and relatively attractive valuations—even as volatility persists amid US policy uncertainty.

Market review: July 2025

Global equity markets extended their rally in July 2025. The MSCI All Country World Index of stocks generated positive returns in USD terms during July as seven out of the 11 global equity sectors advanced, led by the information technology, energy and communications services sectors. Emerging market stocks were aided by a weaker greenback and outpaced global stocks, while global growth stocks outperformed global value stocks.

Investor sentiment was lifted by renewed clarity on US trade policy, following key agreements with Japan, South Korea and the EU. Broad-based gains were also fueled by generally strong US corporate earnings, easing inflationary pressures and a declining US dollar. Continued enthusiasm surrounding advancements in AI also supported equity markets. Meanwhile, major central banks including the US Fed, the ECB and the BoJ kept their respective policy rates unchanged, maintaining a cautious stance amid macroeconomic headwinds.