Weekly ETF Brief

Global Equities: Balancing Risks and Opportunities

12. Mai 2025 5 min read

Krzysztof Janiga, CFA

Senior Equity ETF Strategist

Global equities faced significant volatility in the first four months of the year, driven by tariff-related uncertainty. Despite their sluggish start, equities could provide upside potential this year if trade deals materialise.

Beyond tariffs, the investment backdrop for equities looks solid as inflation has slowed and central banks are on an easing path. Global economic growth expectations have moderated, but have not tumbled, allowing for relatively healthy earnings growth against more attractive valuation levels. The potential upside move is plausible, but uncertainty is higher than usual and markets are being driven by erratic tariff policies. In this environment, a global diversified equity exposure may be a reasonable choice for investors.

Market Chaos and Recovery

In the first four months of the year, the investment backdrop was marked by extreme levels of uncertainty. Equities initially rallied, reaching all-time highs in February. The rally was led by European stocks, fueled by fiscal spending plans in Germany and an increased probability of peace negotiations for Ukraine. But when steep tariffs were announced on “Liberation Day,” markets tumbled, leading to a universal selloff — only to be followed by a rebound when Donald Trump announced a 90-day tariff pause and adopted a less hawkish tone.

In the short term, performance is likely to be driven by tariff-related developments as they cloud the outlook on both macro and micro levels. However, as we move towards the second half of the year, it is likely that market focus will shift to other drivers, perhaps fiscal easing in the US. Over the long term, the current market chaos may wind up being a short-term pause in global equity performance. After all, despite multiple crises over the past 10 years — including COVID, the inflation spike, and the Russian invasion of Ukraine — the MSCI ACWI IMI Index outperformed both commodities and global bond exposures by a wide margin (Figure 1).

Figure 1: Equities Saw Stronger Long-term Performance

Growth Expected to Soften but Not Tumble

Despite recent downgrades, the global economy is expected to grow between 2.6% and 3.0% annually over the next three years¹. Trade wars pose significant downside risk to both the global growth outlook and to US exceptionalism: US Real GDP contracted by 0.3% in Q1 due to a surge in imports, and the consensus GDP forecast for FY25 decreased to 1.4%². European growth remains muted, but the German fiscal spending package may be a structural tailwind. Tariffs against China weigh on its export-driven economy but may accelerate fiscal easing to boost domestic consumption. The uncertainty itself is harmful to growth as a clouded outlook leads to the postponement of investment plans and limits consumption propensity.

The silver lining? It’s likely that the currently proposed tariffs will be significantly softened since they are not economically sustainable at their current rates. This could lead to a continuation of strong earnings growth, which underpinned stellar equity performance in 2023 and 2024.

Figure 2: Real GDP Growth Forecasts (Consensus)

Central Banks on the Easing Path

Inflation has been a key economic concern for equity investors over the past two years as it delayed interest rate cuts. Disinflation progress, while slower than initially expected, is visible with US CPI at 2.4% and core PCE at 2.6% in March³. The Federal Reserve (Fed) may adopt a cautious approach, balancing downside growth risks with potential inflationary pressures from tariffs. Outside of the US, tariffs have a more detrimental impact on growth than on inflation. CPI in the Eurozone is becoming less of a concern, having moderated to 2.2%. At the same time, the ECB deposit rate stands at 2.25%, suggesting that monetary easing is largely done. UK inflation slowed to 2.6%, likely allowing the BoE to make several cuts from the current 4.25% level. In China, deflationary pressures continue to be a greater concern than high inflation. Japan is the only exception as its CPI sits at 3.6%. For the most part, central banks are on the easing path which, absent a recession, is a preferred monetary setup for equities.

Figure 3: CPI Inflation Across the Globe

Labour Markets Remain Resilient

The battle against inflation is being won without any significant harm to the labour market, which remains the brightest spot of the economic backdrop. In April, US unemployment stood at 4.2% while the Eurozone remained at a record low of 6.2% in March⁴. Tight labour markets drive consumer resiliency, providing a cushion against tariff-related uncertainty and a foundation for growth if trade tensions de-escalate going forward.

Figure 4: Unemployment Levels Across the Globe

Valuations Derated Modestly

Global equities derated to a 1-year forward P/E of 17.2x, standing modestly above the 10-year average. Escalating trade tensions are likely to lead to further multiple compression, while successful trade deals between the US and its counterparts may lead to a continued rebound. This could be amplified by the recent derating. On the one hand, lower P/E levels are justified by clouded guidance; on the other, strong earnings demonstrate equity market resilience.

Figure 5: MSCI ACWI IMI Price-to-Earnings Multiple 12M Forward

Robust Earnings, Clouded Guidance

Equities have delivered better-than-expected Q1 earnings thus far. As of 6 May, companies in the S&P 500® Index exceeded expectations by a healthy 8.4%, translating to 12.1% annual growth⁵. EURO STOXX 50® companies showed a 2% decline but came in 5% above forecasted numbers. Nikkei 225 equities delivered 6.7% growth and a 6.9% earnings surprise. Yet at the same time, EPS growth expectations softened and companies pointed to uncertainty, or even withdrew guidance, especially in industries sensitive to tariffs. The evolving tariff backdrop and potential fiscal easing in the US weigh on future earnings growth.

Figure 6: EPS Growth Estimates

Capture Equity Potential With Global Exposures

Despite a sluggish start to the year, global equities may provide significant upside — as long as tariff-related uncertainty abates. While the investment backdrop remains clouded, investors may prefer to allocate to a diversified exposure such as the MSCI World Index, the MSCI ACWI Index, or the most comprehensive MSCI ACWI IMI Index, which aims to capture 99%⁶ of the world’s market capitalization. European investors may also consider hedging their exposures given the elevated risk of the US dollar depreciating relative to their own currencies.

Figure 7: Global Equity Indices by Market Cap

Figure 8: Global Equity Indices by Number of Constituents

Gain Exposure to Global Equities

Global Developed Large and Mid-cap Equities

Global Developed & Emerging Large- and Mid-cap Equities

Global Developed & Emerging Large-, Mid-, and Small-cap Equities

Footnotes

Disclosure

Marketing Communication

Information Classification: General Access

For Professional Clients Only

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7641877.12.1.EMEA.INST

Exp. Date: 31/05/2026

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