News that the US and Russian Presidents plan to meet in Alaska on Friday raised hopes of progress towards an end to the war in Ukraine and came after a positive week for stocks, which were buoyed by strong earnings. With the bulk of S&P 500 companies having reported, 80% have beaten expectations, helped by a weaker dollar and earlier analyst downgrades. The positive earnings news helped equity investors look past data from the Institute for Supply Management (ISM) that suggested a cooling in the US economy. The S&P 500i rose 2.4% (in USD) on the week and the Nasdaqii gained 3.7% (in USD). On trade policy, President Trump said the US will impose a 100% tariff on imports of semiconductors, but he exempted companies that are manufacturing in the US or have committed to do so. Despite Switzerland failing to negotiate down a 39% US tariff rate, Swiss stocks were broadly flat on the week, with many large cap companies able to avoid or mitigate the impact of the levy. Gold, much of which is refined in Switzerland, rose on concerns about a US tariff only for media to report that such a levy may not be imposed after all. On monetary policy, the Bank of England had to hold two rate votes for the first time in its history before cutting rates by a quarter point,highlighting a more hawkish committee than expected.
Quote of the week
On the 80th anniversary of the US atomic bombing of Japan, the US Ambassador to Japan, George Glass, said: “The people of Hiroshima and Nagasaki and their message of peace and hope are an enduring reminder of the power of reconciliation”.
Key data
The ISM indices for manufacturing and non-manufacturing sectors in the US were weaker than expected in July. Q2 nonfarm productivity increased above expectations in Q2 (+2.4%, quarter-over-quarter annualised). Chinese PPI fell 3.6% on the year in July, as deflationary forces remain. Japanese household spending rose 1.3% in June from a year earlier, short of expectations for a 2.7% increase.
The roller coaster of US trade policies continues – a brief period of apparent progress has been followed by news of new levies. This underscores our continued caution.
While liquidity conditions are supportive, valuations are very stretched, the global macro backdrop is muddled, with downside risks to growth and upside ones to inflation, and geopolitical conditions remain in flux.
We therefore remain neutral across global equities, bonds and cash. Equities are in an uptrend, but expensive and vulnerable to a lagged impact of tariffs on the US economy. Bonds are supported by monetary easing and reasonable yields, but are at risk from re-accelerating US inflation and growing deficits.
Fig. 1 – Monthly asset allocation grid August 2025
Source: Pictet Asset Management
We believe emerging markets offer some of the best opportunities – a view supported by our business activity indicators. We expect emerging economies to grow by 4% this year and next, compared to around 1.2% for the developed world, with the growth gap between the two at its widest level in two decades. Improving industrial production dynamics (not least in China) and continued easing by central banks should act as tailwinds for the emerging world, to the benefit of EM currencies, bonds and equities.
In contrast, our US macro score remains negative, with the world’s biggest economy likely to suffer a stagflationary shock. We expect US GDP growth to undershoot consensus in 2025 and 2026 as consumption growth continues to slow. According to our models, US tariffs will reduce the country’s GDP by 1.4ppts, compared to a 0.4ppts drag on the global economy. This asymmetric impact, coupled with limited policy stimulus options due to rising inflation, places the US in a less favourable position relative to other major economies.
For Europe, the impact of tariffs is expected to be offset by large-scale fiscal stimulus, particularly from Germany. However, we would like to see more progress in the implementation of those plans before turning more positive on the euro zone economy – and on the region’s equity markets.
The Fed may have paused for now, but is clearly in a dovish mood, and the private sector has stepped up, with US banks extending loans and buying securities. We expect Fed easing to resume in the coming months, with two more cuts. This, together with deregulation of the financial sector, should propel money and credit growth.
The positive liquidity backdrop, in turn, is counter-balanced by stretched valuations. Our models, which compare asset prices with their 20-year history, score global bonds as expensive and equities as very expensive.
Such pricing is particularly worrying given the potential for disappointing corporate earnings. A top-down analysis, using our macro forecasts, suggests global earnings growth of 3.7% this year and 7.4% in 2026 – half the pace expected by bottom-up analysts according to IBES consensus figures. Our analysis suggests that the disappointment could be particularly pronounced in the US due to its lacklustre economic growth prospects.
Technical indicators support our overall neutral stance on global assets, as well as our preference for emerging markets. For global bonds, sentiment and trend signals are all neutral, while EM bonds have full trend support. For global equities, trends are broadly positive, but this is balanced out by negative seasonality in both August and September. Flows, meanwhile, show continued investor appetite for EM local bonds, and a rotation from defensive stocks into cyclical ones.
The US dollar appears tactically oversold, prompting us to take profits and close our long positions in sterling and the Japanese yen. However, we expect the dollar down-trend to continue in the medium term thanks to concerns over policy credibility.
Fig. 2 – Liquidity boost Net share of central banks in easing mode over previous 6 months, %
Data covering period 31.01.2020-31.07.2025. Source: LSEG, Pictet Asset Management.
Equities regions and sectors: caution prevails despite rally
Global equities have not only fully reversed “Liberation Day” shock declines of April, but are now advancing well beyond those previous highs. US and UK stocks, for example, have printed new record highs as trade agreements between the US and its key trading partners and expectations for monetary and fiscal stimulus in major economies encouraged investors to wade back into risk assets.
Yet we don’t think it’s time to let our guard down and raise our benchmark weight in equities. The asset class is still expensive from a valuation standpoint; tariff flip-flops continue to jolt global markets and equities are also vulnerable to delayed effects from tariffs on the US economy.
As such, we keep our neutral stance, focusing on sectors with strong earnings dynamics and regions with supportive local conditions.
Among these bright spots are emerging markets, where we remain overweight. Real GDP growth differential between emerging and developed economies stands at around 2% per annum, among the highest in the past 15 years, and we expect this gap to hold in the coming year. The EM world’s growth advantage has typically driven appreciation in their currencies, which remain undervalued by more than 10% according to our fair value model.
We’re also optimistic about Chinese stocks, where we maintain an overweight. The People’s Bank of China has adopted an accommodative stance for the first time since the global financial crisis and emphasised more efficient and impactful implementation of stimulus policies. Beijing stands ready to support the economy with further policy easing. At the same time, it plans to address the problem of overcapacity that is plaguing China across industries and fueling deflation with its anti-involution strategy designed to phase out weaker players.
We also maintain a key hedge through our overweight position in Swiss equities, which offer attractive valuations and quality stocks in sectors like consumer staples which tend to withstand cyclical downturns.
We’re keeping our neutral stance in the US. We expect US earnings growth of only 2% this year, which is some 7 percentage points below consensus, as the impact of tariffs starts to bite. The US remains the region with the least attractive valuation. Our analysis shows that a group of 20 US mega-cap stocks – what we call the ‘Terrific Twenty’ – are catching up with the ‘Magnificent Seven’ in terms of multiples (see Fig. 3). This demonstrates that investor enthusiasm and associated stock price premiums are broadening out beyond the tech giants.
Fig. 3 – Terrific Twenty catching up with Magnificent Seven Magnificent Seven vs Terrific Twenty* and median stock 12m forward PE
*Broadcom, JPMorgan, IBM, Berkshire Hathaway, Visa, Netflix, ExxonMobil, Mastercard, Costco, Walmart, Oracle, AT&T, GE Aerospace, Home Depot, Wells Fargo, Bank of America, Palantir Technologies, Chevron, Philip Morris International, Goldman Sachs.
Source: LSEG, data covering period 01.01.2014 – 23.07.2025
While Europe shows signs of improvement with fiscal spending plans and Germany’s corporate tax reforms, the region is not immune to the impact of the trade war and a slowdown in the US. For these reasons, we keep broader European equities neutral too. The best opportunity to benefit from a European recovery, in our view, lies in focused exposures to domestic mid-cap and industrial stocks in the euro zone.
We remain overweight communication services. Despite their challenging valuation, the sector is supported by long-term trends such as AI adoption, while retaining earnings leadership – as the latest earnings beat from Meta highlights. Financial stocks, which we are overweight, should benefit from a steeper yield curve and potential deregulation under the Trump administration. We also remain overweight in utilities, which offer defensive characteristics and benefit from the structural trend of increasing electricity demand.
Fixed income and currencies: clouds gather over yen and sterling
We trim our positions on the Japanese yen and sterling to neutral from overweight, with both looking vulnerable against the dollar.
Japan’s political and economic uncertainty is likely to weigh on the yen. July’s upper house elections failed to give a clear political signal, raising the risk of a hung parliament destabilising the government. Meanwhile, Japanese government bonds (JGBs) have come under pressure amid concerns over a possible increase in public borrowing, with demand slumping for long-dated issues, leaving the yield on the 30-year JGB at around 3.1% from just under 2.3% at the start of the year. As a result, the Bank of Japan is likely to pull back on its quantitative tightening programme, which is negative for the currency – in effect it is favouring shoring up JGBs over the yen.
Sterling, meanwhile, is relatively expensive on a purchasing power basis. We expect a dovish tilt from the Bank of England as it responds to a lacklustre economy and pressure on consumers from rising tax rates. The market is pricing in two quarter point rate cuts during the rest of the year, but we think there’s a chance of a third, which would weaken sterling.
The yen and sterling downgrades also reflect our view that the dollar’s weakness so far this year is overdone. We foresee a period of consolidation, in part thanks to a better recent record of positive economic surprises compared to other large economies (see Fig. 4). Nevertheless, we expect this to be short-lived respite for the dollar which is still fundamentally overvalued and should eventually resume its downtrend.
Fig. 4 – Dollar surprise US dollar index vs economic surprise index (US-G10, 6-week lead)
Source: LSEG, Citi, Pictet Asset Management. Data covering period 29.03.2024-30.07.2025.
We keep our full overweight on gold, which remains the defensive asset of choice in an environment where more than three-quarters of the world’s 30 biggest central banks are cutting rates.
In fixed income, we stick to neutral positioning on most sovereign debt. Notwithstanding that most central banks are in an easing cycle, inflationary risks persist. For instance, President Donald Trump’s tariffs will push up US inflation over the near term – we expect the net impact to be 2 percentage points, albeit as a one-off. The Fed will have to weigh this against the hit to the US economy.
We maintain our overweight in emerging market local currency bonds, excluding China. High policy rates relative to domestic inflation continue to underpin this asset class. We are also overweight emerging market corporate debt; it has already benefitted from robust economic strength and we expect such conditions to persist over the medium term.
Elsewhere, we are overweight in European high yield credit, which is likely to be supported by Germany’s infrastructure and defence spending.
Global markets review: record highs
Global equities pushed higher in July, with the MSCI All Country World Index scaling fresh record highs (see Fig. 5). Fund managers turned moderately optimistic on risky assets, according to Bank of America’s monthly survey.
The gains were broad-based. Emerging market equities added around 3.4% in local currency terms, with emerging Asia looking particularly strong. Investors welcomed signs of continued economic growth in the developing world, despite uncertainty over US tariffs.
Britain’s FTSE 100 hit record highs, breaking through the psychologically key 9,000 point barrier. US equities added 2.3% as investors welcomed forecast-beating quarterly earnings from the likes of Apple, Meta and Microsoft. Among the nearly 300 of the S&P 500 companies who have already reported their second quarter results, 81% came in above analyst expectations, according to LSEG data.
Strong earnings helped IT stocks to add 4.6% on the month despite already stretched valuations. The energy sector, meanwhile, gained 3.1%, reflecting a surge in the oil price amid continued tensions in the Middle East.
Fig. 5 – Rebound MSCI All Country World Index
Data covering period 28.07.2023-29.07.2025. Source: LSEG, Pictet Asset Management.
Performance in fixed income markets was more mixed, with global bonds finishing July down 0.4% in local currency terms. US Treasuries lost 0.7% as the Fed left borrowing costs unchanged in July and signalled that it may remain on hold at least through to September.
Japanese bond prices fell, with yields on 30-year bond hitting record highs in the face of political uncertainty and the prospect of increased government borrowing.
Credit markets generally held up better than sovereign debt, supported by steady investor inflows.
In foreign exchange markets, the dollar gained 3.2% versus a trade-weighted basket of currencies. It performed particularly strongly versus the Japanese yen and sterling.
The Brics coalition is starting to gel into a real threat to the West
The group has long been dismissed as a collection of developing countries with little in common other than historical border disputes and troubled economies. But in recent years, it has expanded beyond its original membership to include Egypt, Ethiopia, Indonesia, Iran, and the United Arab Emirates and has extended invitations to Saudi Arabia. Turkey, Mexico, and others have applied for membership.
Some of these countries lack punch or significance on their own. But they have all been carefully chosen to add to the coalition’s collective strengths and levers of global influence. The Trump administration’s tariffs may be an overreactionto this—but there are signs the group is methodically threatening the economic and geopolitical hegemony of the U.S.
Brics is for China what the G-7 and the European Union are for the U.S. The G-7 and the EU, however, want for resources Brics is rich in. Brics dominates global production in magnesium, aluminum, and antimony, all of which are needed for ammunition production. It has more rare earths, industrial metals, and grains than the G-7, and produces more oil. The group also owns almost double the precious metals reserves of the G-7 and EU combined. Overall, Brics has significant advantages in the artificial intelligence and clean energy revolution.
Iran, South Africa, Egypt, the U.A.E., and Indonesia control four of the world’s six most important maritime chokepoints. And Brics member countries have a still-growing consumption base, with demographic growth trends exceeding the West’s for at least the next 35 years.
Brics is for China what the G-7 and the European Union are for the U.S. The G-7 and the EU, however, want for resources Brics is rich in.
— Maria Vassalou, PhD Head of the Pictet Research Institute, Geneva
It is also emerging as a defense pact, with nuclear capabilities that counterbalance NATO’s. From China and Iran aiding Russia in its war against Ukraine, to declarations regarding the attacks on Iran and the war in Gaza, Brics appear increasingly less shy about asserting its ambitions in the geopolitical arena. The Trump administration’s swift push for a cease-fire in last month’s conflict between Israel and Iran averted any opportunity for China or Russia to get involved. But their recent declarations of solidarity in Rio shows that the incident didn’t go unnoticed.
The U.S. still has the world’s dominant currency. But Trump seems anxious about that, too. In January, his administration threatened to impose 100% tariffs on Brics if it attempts to de-dollarize. It has already developed multiple payment systems that successfully bypass the dollar settlement system, allowing Russia to evade U.S. or EU sanctions. These payment systems, however, don’t amount to de-dollarization, as many of them are implicitly or explicitly pegged to the U.S. dollar. But they do show that the members are willing and able to devise ways that avoid the reach of the U.S. Everything suggests the adoption of a common currency will one day become one of Bric’s goals, although that would take at least a decade to become reality.
Meanwhile, Brics has expanded its intragroup trade by close to 200%—at the expense of imports from the G-7—in response to U.S. tariffs and the war in Ukraine. This has worked to keep Russia afloat. It has also acted as a hedge for China, which has seen U.S. and European markets shut out its products. While Brics cannot replace the U.S. as a destination for China’s exports, they can certainly cushion the blow of tariffs on the Chinese economy.
Trump’s tariffs can only go so far to impede these short-run ambitions. But tariffs issue a significant message to the Brics coalition for the longer term: The member countries will need to disentangle their economic dependency on the West. From an investor’s perspective, that means the emerging markets in Brics will profoundly change. Their opportunities, risks, and accessibility need rethinking by investors, both at a single asset and portfolio level.
The ABCs of Family Governance
In every family, certain patterns emerge over time, such as rituals, traditions, and expectations that quietly shape daily life and major decisions alike. Often, these are not written down but are rather implicit: whose opinion is sought during important decisions? How are responsibilities distributed? How are conflicts resolved? For many families, these unwritten rules work well while the family remains close-knit and its affairs relatively straightforward.
However, as families grow, diversify, and extend their reach across generations and geographies, these implicit frameworks are increasingly tested. Indeed, the world today presents new challenges for families, with globalisation, generations cohabiting and the diversification of the nuclear family. With these changes, the risk of misunderstandings or misaligned expectations rises, and explains why we are observing a rising demand for explicit, intentional governance.
The purpose of family governance
Family governance is the process of establishing a structured approach to managing the evolving relationships, interests, and responsibilities within the family and its wealth and/or business. It provides a means to ensure continuity, unity, and clarity as families adapt to changing circumstances. Rather than relying on assumptions or tradition alone, family governance invites families to articulate their values, define roles, and set out clear mechanisms for decision-making and conflict resolution.
Effective family governance provides a framework that enables parties with differing interests to engage in functional dialogue and make critical decisions needed to manage business and wealth.
A useful way to understand the complexity of modern family life is through the lens of the Three Circle Model: Family, Ownership, and Business (or Wealth). Each circle represents a distinct set of concerns and responsibilities, whether nurturing relationships and legacy, safeguarding ownership interests, or managing operational matters. As families evolve, individuals may find themselves in overlapping roles, requiring careful coordination and mutual understanding. Mapping out where these interests align and where they diverge is an essential first step in designing a governance framework that is both fair and effective.
Setting up a governance framework
A governance framework is built by relying on three different types of tools: guiding principles, forums, and initiatives. The core of this framework often begins with guiding principles, and more specifically the family charter, a document that outlines the family’s shared values, long-term vision, and principles for decision-making. While not legally binding, the charter serves as a reference point for all family members, helping to guide behaviour and resolve disputes. It is complemented by forums such as family assemblies or councils, which provide structured opportunities for dialogue, planning, and education. On top of this, initiatives such as next-generation venture funds, a philanthropic foundation or a family museum are launched, which can help the family stay united and focus on their specific priorities and interests.
The components of governance must embody the unique culture and narratives of the family.
Implementing such a framework is not without its challenges. The process requires openness, patience, and a willingness to engage in sometimes difficult conversations. It is natural for some family members to feel hesitant or wary, particularly when it comes to discussing sensitive topics or involving external advisors. Yet, it is precisely through these conversations that families can identify shared goals, address underlying issues, and build a stronger foundation for the future.
The role of a family governance advisor can be invaluable in this context. With an objective perspective and experience working with diverse families, an advisor can help facilitate dialogue, ensure all voices are heard, and guide the family towards practical solutions that reflect their unique circumstances and aspirations.
Weekly house view | To taco or not to taco?
The week in review
Trade tensions shook markets off highs last week as President Trump threatened to impose a 30% tariff on imports from Mexico and the European Union starting on 1 August, and announced a 50% tariff on copper imports. The 1 August deadline gives the targeted parties time to negotiate deals that could lower the threatened tariffs. Markets are trying to gauge the president’s resolve and whether the s0-called TACO trade (Trump Always Chickens Out) will apply to the latest tariffs. CEO confidence has recovered two-thirds of its decline since the “Liberation Day” tariff shock on 2 April. The S&P 500[i] fell 0.3% (in USD) last week, giving up some gains after hitting a record closing high on Thursday. The overall fall came despite a tech giant becoming the first company to hit USD 4 tn in market capitalisation thanks to its leading role in powering the artificial intelligence (AI) boom. The 10-year US Treasury yield rose 7 bps to 4.42%. The next CPI release may start to reveal the effect of tariffs on US inflation. The minutes of the FOMC’s June meeting showed participants judged “it remained appropriate to take a careful approach in adjusting monetary policy” given elevated uncertainty about inflation and the economic outlook.
Geopolitics
Russia attacked Ukraine with a record 728 drones overnight on Tuesday into Wednesday after Trump pledged to send more defensive weapons to Kyiv. Separately, the UN nuclear watchdog pulled its last remaining inspectors from Iran as a standoff deepened over their return to the country’s nuclear facilities bombed by the US and Israel.
Key data
The NFIB Small Business Optimism Index edged down 0.2 points in June to a slightly lower-than-expected 98.6. The index remains well below the post-election peak, suggesting cooling enthusiasm among small business owners about the impact of Trump policies on the economy. In China, PPI deflation widened in June, primarily driven by metals, coal and cement, on weak housing investment, and a tariff hit to export demand.
