Investors must actively “rewire” their investment allocations in line with changing global markets, says Fidelity International.
Amid a backdrop of shifting geopolitics, inflation dynamics and trade, the investment manager said there is a growing need for regional portfolio diversification.
Henk-Jan Rikkerink, global head of multi asset, real estate and systematic at Fidelity International, said: “We’re entering a phase where traditional safe havens like US assets can no longer shoulder global portfolios. Investors must actively rewire their allocations in line with structural shifts in geopolitics, inflation dynamics, and trade.
“Tariffs, trade deals, tantrums: the first six months of this year have shown us how quickly narratives can change. We are closely monitoring current events in the Middle East and expect more market volatility in what remains of 2025.
“However, it is the deep-seated fragmentation of the global order started by recent policy shifts that will matter most to long-term investors. The US is pushing for reliable allies in supply chains, while China is being pressured to orientate away from supply-side stimulus toward domestic consumption. A managed decoupling between both countries in strategic sectors will push trade and capital flows along new geostrategic lines.”
According to Fidelity, hard currency and local currency emerging market bonds stand to gain from a weak UK dollar, while the euro and Japanese yen should prove relatively stable and provide some of the defensive qualities lost from a turbulent dollar.
Fidelity’s other convictions for the remainder of the year include emerging market equities and gold, with the latter likely to play its traditional role as a preserver of value as the dollar depreciates.
Private assets including real estate offer further diversification potential, the firm said.
Rikkerink explained: “That’s particularly useful given their long-term investment horizon and active ownership in many strategies, providing investors with the ability to make adjustments to evolving market dynamics.”
Finally, Fidelity said fiscal policy also supports the case for portfolio rebalancing, with the US debt burden “impossible to ignore.”
“One such area could be German bunds. US foreign policy and the need for Germany to boost internal investment in infrastructure and defence spurred the country to initiate a fiscal U-turn earlier this year. There is still ample room for more issuance given Germany’s track record of fiscal rectitude,” he added.
