24th June 2025, Kathmandu
KGI’s 2025 Mid-Year Market Outlook provides a comprehensive analysis of the global economic landscape, focusing on the profound impact of ongoing trade wars, U.S. policy shifts, and their ripple effects on interest rates and regional markets.
KGI Mid-Year Market Outlook
As Trump’s presidency enters its second half, marked by the escalation of trade tensions and threats of over 100% tariffs on China, market fluctuations have become a new normal, prompting a re-evaluation of investment strategies.
Global Economic Headwinds and Policy Responses
The report highlights critical questions facing investors: How will the tariff war shape global economic development? What is the influence of Trump’s economic uncertainty on interest rate trends? How will China navigate its increasingly tense trade relationship and achieve economic growth targets amidst external instability?
In response to this complex backdrop, KGI maintains its “ACE” strategy for the second half of 2025:
Alternatives (A): Gold and other alternative assets are emphasized for their inflation-resistant qualities and low correlation with traditional stocks and bonds, particularly given controversial government fiscal conditions, central bank diversification, and geopolitical instability.
Credit Selection (C): A preference for high-grade bonds is maintained, recognizing market opportunities to lock in yields, especially with expected economic downside risks.
Elite Stocks (E): Diversified investment in quality stocks is recommended, balancing allocation between cyclical and defensive stocks, with a focus on countries less impacted by tariffs or those with existing trade agreements.
Cusson Leung, Chief Investment Officer at KGI, reiterates the importance of the ACE strategy, noting favorable conditions for gold prices and the opportunities in quality corporate bonds.
Macro & U.S. Markets: Slowdown Ahead
The global economy is poised for a slowdown in 2H2025, most notably in emerging markets and the United States among mature economies. While the first half saw robust U.S. performance due to pre-tariff stockpiling, this momentum is not expected to continue. GDP growth rates could dip below 1%, with an annual average around 1.35%. Eurozone and UK slowdowns will be less severe, but trade war impacts remain significant. Japan and China also face bleak economic outlooks.
U.S. consumer confidence and corporate orders are under pressure from Trump’s policy uncertainties, with a downward trend in labor market data further impacting wages and consumption. The Federal Reserve is anticipated to cut interest rates by 25 basis points in Q4 2025, followed by further reductions in 2026. While a bear market for U.S. stocks is unlikely this year, a Q3 decline is possible, with profit estimates dropping from 14.1% to under 9%. Investors are advised to favor defensive and high-quality stocks.
In bonds, a weakening U.S. economy is expected to drive lower Treasury yields (4.0%-4.3% by Q4). KGI recommends investment-grade corporate bonds and considering a transition to non-investment-grade bonds as the economy bottoms out. James Chu, Chairman at KGI Securities Investment Advisory, cautions that while trade war easing reduces recession risk, its uncertainty impacts confidence and hard data, potentially bringing volatility as tariff suspensions expire.
Mainland China and Hong Kong Markets: Resilience and Policy Support
China’s economy has shown marginal improvement in early 2025, with full-year GDP growth expectations rising to 4.5% after a short-term tariff exemption agreement with the U.S. Despite shrinking exports to the U.S., increased trade with ASEAN and India reflects China’s active diversification efforts. The Chinese government’s four economic priorities include maintaining banking liquidity, boosting consumer confidence, supporting innovation, and expanding trade alliances.
China-U.S. relations are characterized by “periodic tension and relaxation.” China is accelerating domestic supply chain strengthening, diversified trade strategies, and independent R&D to achieve core technology autonomy in response to U.S. high-tech export controls. Growing gold reserves underscore its safe-haven value. The strong performance of the Hang Seng Index since early 2025 reflects sustained overseas capital allocation to Chinese assets.
KGI forecasts the Hang Seng Index target price at 25,500 points for 2H2025, representing a potential 6.3% growth and a 27.5% annual increase. Six sectors are favored: industry, Internet, raw materials, telecommunications, healthcare, and utilities, with 13 selected stocks. Cusson Leung emphasizes China’s continued recovery driven by policy support, domestic demand, and manufacturing upgrades, while advising attention to ongoing uncertainties.
Taiwan and Singapore Markets: Navigating Volatility and Global Uncertainties
Taiwan’s stock market experienced volatility from Trump’s tariff policies in 1H2025 but saw recovery due to easing trade tensions and stable AI demand. KGI expects negative trade war impacts to become evident, potentially leading to downward adjustments before Q3, with stabilization in Q4 if adverse factors are absorbed. AI demand remains a crucial support. James Chu notes that early stockpiling cushioned Q1 but may lead to a less prosperous H2 peak season.
Singapore’s economy is expected to see cautious growth in 2H2025 amid global trade uncertainties. While wholesale trade, manufacturing, finance, and insurance provide support, geopolitical tensions and protectionism weigh on sentiment. Inflation is manageable, but the labor market shows strain. Strategic investments in AI, digitalization, and green technologies are aimed at future-proofing the economy. Chen Guangzhi, Head of Research at KGI Singapore, highlights Singapore’s political and economic stability, maintaining a “cautiously upbeat” outlook.
About KGI
KGI, a leading Asian financial institution since 1997, offers comprehensive wealth management, brokerage, fixed income, and asset management services. Backed by KGI Financial Group, it has a robust footprint across Taiwan, Hong Kong, Singapore, Indonesia, and Thailand.
For more: KGI Mid-Year Market Outlook