Global Balanced portfolio positioning intra-quarter update as of 06/13/2025
The global economic cycle retains late-cycle characteristics, especially in developed economies, but we see signs of improvement in Asian emerging market economies, even as broad international markets still face headwinds from U.S. trade policy uncertainty. As such, we have reduced our overweight of Developed Asia equities and established an overweight of Emerging Market Asia.
June 13, 2025
ACTIONS and OVERVIEW:
Added new Overweight of EM Asia Equities
- Added new Emerging Markets Asia equity ETF holding
Reduced Overweight of Developed Asia Equities
- Trimmed existing Developed Asia equity ETF holding
The global economic cycle continues to exhibit signs of being at an advanced stage, particularly within developed economies. Recently, however, signs of improvement have become evident in Asia’s major emerging market (“EM”) economies, including a stabilizing credit and property market backdrop in China following a prolonged downturn, a pivot to more stimulative monetary policy among the region’s central banks, and renewed growth in high-tech manufacturing amid healthy secular trends in technology investment across the region.
Given the improving macroeconomic fundamentals we see in EM Asia economies, coupled with a favorable double-digit earnings growth trajectory and attractive valuations relative to developed markets, we believe a shift to an overweight of EM Asia equities is warranted alongside a continued, though reduced overweight of Developed Asia. As such, in our global ETF portfolios we are shifting a portion of our overweight allocation to Developed Asia and rotating into an additional overweight position in EM Asia.
UPDATE DETAIL:
Added new Overweight of EM Asia Equities
- While the international trade & tariff situation remains fluid, we believe the worst-case scenario for EM Asia is unlikely, and U.S. ongoing negotiations with China could reduce trade uncertainty across Asia in the second half of 2025.
- The PBOC, the Reserve Bank of India, and the Bank of Korea have each reduced short-term policy rates this year and could ease further in the coming quarters.
- China’s real GDP growth has stabilized around 5%, and we see improvements in its money and credit indicators along with looser monetary policy and more proactive fiscal policy reducing the risk of sharp regional economic deceleration.
- After earnings declines in 2022 and 2023, EM Asia EPS growth returned to positive territory in mid-2024 and is expected to maintain double-digit growth in coming years.
- EM Asia stocks are currently valued slightly above their long-term average, but at a discount to developed markets.
Reduced Overweight of Developed Asia Equities
- Japan’s post-Covid recovery has played out, in our view, and its nominal GDP growth is expected to slow from the recent 4.0%+ pace to ~2.5% in 2026 and 2027, though this remains a healthy level compared to the last 30 years.
- Domestic demand is likely to depend on the pace of wage growth, in our view, which may see limited acceleration as disinflation takes hold and employment gains slow.
- While monetary policy remains stimulative in Japan, above-target inflation has allowed the Bank of Japan to maintain a hiking bias, making it an outlier among major central banks.
- Given slowing nominal GDP growth and global trade headwinds, we expect Japanese and broader Developed Asia EPS growth to decelerate to a below-average pace for several quarters, before re-accelerating in 2026.
- With Japanese stocks currently valued in-line with long-term averages and other Developed Asia valuations above average, we see a reduced Developed Asia overweight as appropriate given a slowing growth outlook.
The most recent complete presentation can be viewed here.
Any portfolio characteristics, including position sizes and sector allocations among others, are generally averages and are for illustrative purposes only and do not reflect the investments of an actual portfolio unless otherwise noted. The investment guidelines of an actual portfolio may permit or restrict investments that are materially different in size, nature and risk from those shown. The investment processes, research processes or risk processes shown herein are for informational purposes to demonstrate an overview of the process. Such processes may differ by product, client mandate or market conditions. Portfolios that are concentrated in a specific sector or industry may be subject to a higher degree of market risk than a portfolio whose investments are more diversified.
Holdings, Sector Weightings and Portfolio Characteristics were current as of the date specified in this presentation. The listing of particular securities should not be considered a recommendation to purchase or sell these securities. While these securities were among WestEnd Advisors’ Global Balanced holdings at the time this material was assembled, holdings will change over time. There can be no assurance that the securities remain in the portfolio or that other securities have not been purchased. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities presently in the portfolio. Individual clients’ portfolios may vary.