Invesco Global Market Strategy Office: Global Asset Allocation for the Second Quarter of the Year

Key Chapter Title List

1. Overview and Conclusion: Increasing Risk Exposure
2. Model Asset Allocation
3. Economic Momentum: Trend Positive Despite Tariff Risks
4. Inflation and Policy Rates: Inflation Bottoming, Room for Rates to Fall
5. Asset Momentum: Turning Point or Pullback?
6. Asset Valuation: Defensive Assets Hold Valuation Advantage
7. Currency Outlook: Yen Value Emerges, Euro Regains Momentum
8. Threats, Opportunities, and Risk Appetite Assessment
9. Forecasts and Asset Preferences
10. Long-Term Perspective: Looking Ahead a Decade Using Invesco Capital Market Assumptions
11. Appendix 1: Global Valuation and Historical Comparisons
12. Appendix 3: Invesco 10-Year Capital Market Assumptions (USD Version)

Document Introduction

This report, published by the Invesco Global Market Strategy Office in March 2025, aims to provide strategic guidance on global asset allocation for the second quarter of 2025 to professional and institutional investors. The core judgment of the report is that with major global central banks entering a rate-cutting cycle and real wage growth, the global economy is expected to accelerate within the next 12 months. This macro backdrop is anticipated to favor cyclical assets. However, the report also notes that potential slowdown in the US economy, overvaluation of some assets, and rising geopolitical risks will exert downward pressure on the global growth outlook.

The report is structured rigorously, following a logic from macro analysis to specific allocation recommendations. First, it analyzes that the global economy is in an improving but below-trend expansion phase using proprietary indicators (Global Leading Indicator GLI and Global Risk Appetite Cycle Indicator GRACI) and Purchasing Managers' Index (PMI) data. Regarding inflation and policy, the report observes volatility in the disinflation path, but most central banks maintain a dovish bias, although the pace of rate cuts may slow. In terms of asset performance, while most assets delivered positive returns over the past 12 months, recent market leadership has shifted to defensive assets, which the report views as a short-term pullback rather than a trend reversal.

Valuation analysis forms a key foundation for asset allocation decisions. The report points out that yields on short-term instruments such as cash, CLOs, and bank loans remain above historical averages, offering attractive risk compensation. In contrast, US and Indian equity markets are overvalued, while Chinese equity valuations are significantly below historical averages. In the currency space, the yen valuation is notably attractive and is expected to strengthen further against the backdrop of the Bank of Japan's shift towards tightening, while the US dollar is expected to weaken.

Based on the above analysis, the report's core model asset allocation strategy clearly leans towards increasing risk exposure. Specifically, it raises allocations to commodities and Real Estate Investment Trusts (REITs) to the maximum allowed by policy; it increases the overall equity allocation to neutral (while maintaining an underweight in US equities and increasing holdings in all other regional equities including Europe and emerging markets); and it maintains a maximum allocation to bank loans to balance the portfolio. To support these increased allocations, the report downgrades government bonds to underweight and investment-grade bonds to neutral. Cash and gold maintain a zero allocation.

The report concludes by providing a long-term outlook based on Invesco Solutions' 10-year capital market assumptions, indicating that high-yield bonds and bank loans dominate in optimized portfolios. The entire report is built on extensive proprietary data, historical comparisons, and rigorous methodology, including in-depth analysis across dimensions such as asset yields, Cyclically Adjusted Price-to-Earnings (CAPE) ratios, real exchange rates, and real commodity prices, offering investors a systematic decision-making framework in the current environment of heightened uncertainty.