“The biggest challenge for [private clients] to understand at the moment is what the Trump administration and the relationship with Europe is going to be, particularly with the Russia-Ukraine developments,” Mozamil Afzal, global CIO and CEO at EFG Asset Management, said during an interview. He thinks that his clients wonder what geopolitical role Europe will play between China and the US. Despite such an uncertain environment, he believes that there is a “quiet optimism” among European investors as domestic equities may have reached a “tipping point” whereby money invested in US equities and the US dollar is being repatriated back home. Moreover, a move to the centre-right in Germany and other political developments in Europe may support deregulation given the pressure coming from president Trump and Elon Musk. “Those trends will continue… because otherwise Europe can’t be competitive.”

Impact of US tariffs on the US

In its marketing material, EFG estimated that the impact of tariffs would amount to only 0.10% of EU GDP. Afzal remarked that some countries such as Germany (0.22%) and France (0.15%) may suffer more than other European countries.

Importantly, EFG expects the impact of US tariffs will be greater on itself (-0.65%). “Tariffs will hurt America more than other countries… with a weaker economy and higher inflation… if it goes to the full extent.” Indeed, Afzal believes that the ongoing tariff uncertainty will be responsible for a slowdown in capex in 1H2025 for industrial companies, resulting in slower overall economic activity in the US. It has already started to have an economic impact. “Managers simply do not know what to do.” These developments should support a 50bps Fed rates cut by year end.

He expects capex to recover in the back half of the year as the clouds may clear on tariffs. “Trump cannot continue at this furious pace forever.” Besides, should he succeed in getting corporate tax cuts adopted, Afzal thinks that it will make the return on investment “much more reasonable.”

Turning geopolitical tension into opportunities

He believes that president Putin’s wishes may be summarised in three elements: maintaining recently gained land, Ukraine never joining Nato and the lifting of sanctions. Afzal argued that the opportunities lie with the third condition.

“The opportunity is that Russian gas, oil, commodities start to come back on the market.” Consequently, he would expect the pressure to soften on European economies. The industrial base would be a clear beneficiary thanks to cheaper gas. “What Trump’s trying to do with minerals and rare earths in Ukraine… is just him being opportunistic, because Greenland wouldn’t go to them.”

Changing world order

Now with 10 members, with Saudi Arabia and Turkey about to join the club, Afzal argues that the Brics organisation (Brazil, Russia, India, China and South Africa) should be an economic powerhouse to reckon with as they account for half of the world’s population and world GDP.

“Trump hates the Brics because it is the only and the real danger for the US,” said Afzal during a press conference. He thinks that an aggressive tariff policy against China may result in the BTO, or Brics Trade Organisation, that will promote free trade amongst its members. It makes Afzal wonder where Europe will stand between both blocs as it exports more to the Brics than to the US. “It reduces the bargaining power that Trump has.”

Chinese equities showing signs of life

Afzal observed in an interview that China applies “a lot of tariffs on American-made goods” imported into the country. In a recent trip to Hong Kong, he noted that several investment banks and authorities expected a 20% tariff on Chinese exports to the US. The initial 10% was therefore seen as a positive surprise by the market. Yet one day after the interview with Afzal, Trump announced an additional 10% levy, news that was followed the day after by a decline of 3.6% of the Hang Seng China enterprises market index. The index was still up 18.7% as of 28 February 2025.

Otherwise, the recent Chinese stock rally has come from large IT players such as Tencent and Alibaba on AI agreements with Deepseek, among other AI firms. More importantly, Chinese banks have outperformed the market in the last six to seven months. “You don’t normally see a market that is about to correct when banks are outperforming.”

Market volatility

“Volatility for 2025 will be similar to 2024.” Afzal expects the benign volatility observed on “Google search trends,” with words such as inflation, recession and dollar, as well as on the Vix--a market fear gauge--will continue. “We kind of know where rates are going to go.” The “biggest shock” would then be if the Fed suddenly turned around and started to raise rates. “Then clearly, all bets are off.” He would not be surprised to see stocks down by 10% to 20%, “very quickly.” He added: “it’s very hard for a central bank to go from a cutting cycle to a raising cycle, all in one year.”

He believes that such a predictability explains why the volatility “is not so high right now.” He admitted though that a similar correction may apply on a miss in high earnings growth expectations for the top 10 companies in the S&P 500 given their high valuation.

Compared to history, Afzal explained that the Vix calculation also accounts for one-day options which, at times, have had distorted impacts. “One-day options are really messing around with implied volatility quite a lot.” As per EFG research, the Vix level reached absurdly high levels back in August 2024 when the Nikkei index dropped by 7% in a day.

Asset allocation in 2025

EFG keeps an “underweight” allocation on US equities given their high valuation and the strong US dollar. It has led EFG to maintain an “overweight” on European equities. “We just took a little bit of equity off the table.” Afzal told Paperjam that it reduced its ongoing equity “overweight” in Europe and Asia and moved it into cash given the strong start so far this year.

EFG is neutral in fixed-income but with a “skew” towards high-yield bonds. “If bond yields go lower, we’ll probably move to ‘underweight’ in fixed income.” A reasonable strategy given that EFG expects 10-year yields to be about 100bps higher by year-end.

This article was written for the  to the  of Paperjam magazine, published on 26 March. The content is produced exclusively for the magazine. It is published on the site to contribute to the full Paperjam archive. .

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