Weak dollar to unlock opportunities in emerging markets and global equities

03/07/2025 04:01 AST

With the US dollar at multi-year lows and expected to weaken further over the next six to 12 months, prospects are improving for emerging-market assets, a report showed on Wednesday.

Standard Chartered's Global Market Outlook for the second half of 2025 projects a constructive but volatile environment for investors worldwide.

In the United States, growth continues to be supported by resilient consumption and fiscal stimulus, though trade and policy uncertainty may temper momentum in the second half of the year. In Europe, fiscal easing increasingly offers support, but structural challenges persist while China's outlook is stabilising on the back of targeted stimulus and improving retail activity. Meanwhile, growth in India and ASEAN is expected to remain well-supported.

"We expect the US dollar to weaken over the next 6 to 12 months and have accordingly upgraded Asia (ex-Japan) equities and Emerging Market (EM) local-currency bonds to Overweight. Global equities also remain an overweight position across portfolios, supported by healthy earnings, easing trade tensions, and controlled inflation (so far)," the report said.

Commenting on the report, Ayesha Abbas, managing director and head of affluent and wealth solutions, Europe, Middle East and Africa, and UAE at Standard Chartered, said: "As global markets transition into a new phase, Middle East investors are well-positioned to capitalise on emerging opportunities. A weaker dollar historically supports returns across risk assets, particularly in emerging markets, which have long been core components of regional portfolios."

She added: "This outlook underscores a critical moment for investors in the region. As the global environment adjusts to weak dollar dynamics, shifting trade policies, and diverging central bank actions, investors in the Middle East have an opportunity to reposition portfolios with greater international diversification. Asset classes such as emerging market bonds and equities across major regions (including non-US equities) are well-placed to help investors navigate volatility, capture income, and enhance portfolio resilience in today's shifting landscape."

In line with these themes, the report maintains a preference for USD-denominated bonds in the five to seven-year maturity range, citing them as the most attractive in terms of risk-adjusted returns, particularly as yields begin to ease from current levels. Meanwhile, developed market investment grade corporate bonds have been downgraded to Underweight due to tight yield premiums and slower inflows.

Alternative investments are also in focus, with the bank highlighting gold as a core allocation, supported by strong central bank demand and its role as a diversifier when bonds offer less downside protection.

Khaleej Times