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Our latest asset allocation views

October 2025

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Asset allocation views: evolving global growth and regional dynamics

As economic patterns shift and regional factors influence markets, reassessing allocation is crucial

Key global themes

Navigating a new macro regime: policy trade-offs, fiscal dominance, and regional fragmentation.

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From economic uncertainty to stability

We anticipate moderated global economic growth over the next two to three quarters due to tighter policy conditions and persistent uncertainty since early 2025. However, momentum might improve in 2026 as fiscal support strengthens, monetary policy eases in key markets, and businesses adapt better to the current environment.
Fiscal policy will increasingly support growth, particularly as spending plans in major developed economies take effect and boost demand meaningfully.
Monetary policy remains complex and regionally varied. The United States and Canada have entered the second phase of easing cycles, while the European Central Bank (ECB) may hold steady and the Bank of Japan signals a gradual move toward policy normalization.

United States: tech leadership and AI

U.S. equity markets have rebounded strongly since April, driven by narrow leadership from large-cap technology firms. Much of this strength is tied to the ongoing momentum in AI, which continues to attract investor enthusiasm.
Despite valid concerns around extended valuations, many AI-linked companies maintain strong fundamentals, including high return on invested capital. This supports continued investor confidence in the sector’s long-term growth potential.
While the rally may eventually slow, current market dynamics favor maintaining exposure to U.S. tech-related stocks, especially those with direct ties to the AI ecosystem and innovation-driven business models.

Global opportunity, regional tailwinds

Despite continued momentum in the AI trend, earnings expectations for 2026 are high across several sectors, pointing to a broader opportunity set moving forward. Exposure to cyclical and value-oriented areas with improving fundamentals and supportive macro conditions could benefit investors.
A weakening U.S. dollar could act as a catalyst for global manufacturing, potentially supporting a bull market in international industrials and export-driven economies.
While the United States remains resilient, select regions like Europe show improving macro trends. In Asia, manufacturing and tech-export economies offer compelling opportunities, making regional positioning increasingly important amid global fragmentation and shifting capital flows.

Source: Manulife Investment Management, September 30, 2025. These views are updated on a quarterly basis. This commentary is provided for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. Diversification does not guarantee a profit or eliminate the risk of a loss. No forecasts are guaranteed.

Active asset allocation views

Asset class overview Broad equity Regional/sector-specific equity Fixed income Private markets

Asset class overview

Over the next 12 months, we remain modestly overweight equities versus fixed income. Resilient earnings and improving sentiment offset slowing growth and labor market cracks. Supportive policy helps, but inflation and elevated valuations remain headwinds.
We remain underweight fixed income. Sticky inflation, elevated U.S. debt levels, and rising term premia make long-end exposure unattractive, while a softening outlook by the U.S. Federal Reserve (Fed) could lower short-term yields. We prefer selective opportunities in markets with more supportive monetary and fiscal backdrops.

Broad equity

We remain overweight U.S. equities, driven by resilient earnings and AI momentum. Despite slowing growth and a softening labor market, recession risk is low. Valuation and inflation are headwinds, but policy support and innovation offer a constructive outlook. We favor select sectors: communication services, technology, utilities, and industrials.
We’ve moved overweight developed international markets ex-North America, driven by a more favorable outlook in Europe. The growth gap with the United States is narrowing amid modest recovery and supportive policies, with attractive valuations; however, structural challenges and trade tensions persist.
We remain neutral on emerging markets (EMs). While U.S. uncertainty is high, fiscal and monetary policies in EMs are generally more consistent and conservative. The current easing cycle and improved trade dynamics offer near-term support for EM equities, although we remain selective and watchful.

As of September 30, 2025, Manulife Investment Management’s Multi-Asset Solutions Team remains overweight on U.S. equities and neutral on Canada and Emerging Markets. The team has moved overweight developed international markets ex-North America. — Source: Multi-Asset Solutions Team, Manulife Investment Management, as of September 30, 2025. NA refers to North America.

Regional/sector-specific equity

We’ve downgraded U.K. equities to neutral. The economy’s defensive tilt and limited tariff exposure offer support, but earnings growth lags peers, fiscal flexibility is constrained, and a stronger pound poses headwinds for multinational-heavy indexes.
Resilient data, improving trade dynamics, and favorable policy led us to upgrade Europe ex-U.K. equities to a modest overweight. Fundamentals are soft, but valuations are attractive, and sentiment is improving. We favor Spain and Italy, with a tilt toward banks, industrials, and value.
We’ve moved the APAC ex-Japan region to neutral, but we continue to like manufacturing-driven and tech-fueled export economies like South Korea, Singapore, and Taiwan.
We’ve moved real estate investment trusts to underweight. High interest rates raise refinancing risks. While Fed easing may help, uncertainty around rate cuts persists amid tight labor markets and inflation. Modest yield advantages limit further appeal.
We remain overweight commodities. We favor base metals like copper due to strong demand; however, we’re less constructive on oil amid expected supply buildup.

Taking a regional and sector-specific view, as of September 30, 2025, Manulife Investment Management’s Multi-Asset Solutions Team’s view on U.S. small and mid-cap equities remains underweight. The team has shifted its view on U.K. and non-Japan Asia-Pacific equities to neutral, non-U.K. Europe equities to overweight and real estate investment trusts to underweight. It remains neutral on Japan, emerging Latin America, Mainland China, Hong Kong and Infrastructure equities. — Source: Multi-Asset Solutions Team, Manulife Investment Management, as of September 30, 2025.

Fixed income

We remain neutral across the U.S. investment-grade spectrum. Within the asset class, we prefer mortgages over U.S. Treasuries and credit, given limited risk of prepayment.
In the United States, we continue to favor opportunities at the short end and belly of the curve, as longer-term assets face structural headwinds.
We remain neutral on credit overall, as tight spreads offer poor risk/reward potential. However, strong fundamentals continue to support the underlying assets.
Within Asia, we favor high-yield over investment-grade credits due to attractive relative valuations, wider spreads versus global peers, and technical support from local yield buyers.
While EM debt outperformance year to date has pushed spreads below their long-term median and tempered our optimism, it remains an overweight as a preferred spread product.

Private markets

We remain optimistic about global infrastructure as strong secular trends, including digitization and decarbonization, require significant amounts of long-term capital investment and showcase resilience through market cycles.
Private credit remains attractive as banks continue to restrict lending. While competition in the space is increasing, the ability to secure higher yields in a still-restrictive credit environment remains compelling. Despite a recent decline in Secured Overnight Financing Rates, all-in yields remain in double digits.
We’re underweight private equity due to elevated valuations, extended holding periods, tighter exit conditions, and diminished benefits from leverage. The industry’s scale and slower turnover challenge its ability to sustain historical return assumptions.

Asset class focus

An opportunity in Spanish equities

Strong macro support sets Spain apart among developed economies.

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Spain’s GDP remains above trend, supported by strong consumption, a robust services sector, and insulation from global trade shocks. Structural reforms and European Union (EU) stimulus have enhanced long-term growth potential.

Spanish equities offer improving earnings, strong return on equity, and attractive valuations. Elevated earnings yield, generous dividends, and buybacks provide compelling total return potential versus developed-market peers.

Spain’s equity index is heavily weighted toward European financials—a sector benefiting from earnings momentum, regulatory support, and favorable credit conditions. Corporate revenues have gained from exposure to high growth areas like Latin America.

Spain’s low fiscal deficit risk and household deleveraging support sovereign and credit markets. ECB accommodation and EU integration reduce macro volatility, reinforcing investor confidence in Spanish assets.

Spanish equities: relative EPS growth

12-month forward EPS of MSCI Spain relative to MSCI EAFE

Source: Bloomberg, Macrobond, Manulife Investment Management, as of 9/30/25. Earnings per share (EPS) is a measure of how much profit a company has generated calculated by dividing the company's net income by its total number of outstanding shares. The MSCI Spain Index measures the performance of the large and mid-cap Spanish market. The MSCI Europe, Australasia, and Far East (EAFE) Index tracks the performance of large- and mid-cap stocks of companies in those regions. It is not possible to invest directly in an index.

Asset class returns

Asset class returns comprise the Multi-Asset Solutions Team’s expectations of how different asset classes may perform over a 5-year and long-term (20-year-plus) time horizon.

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Expected returns

^{Source: Multi-Asset Solutions Team, Manulife Investment Management, as of September 30, 2025. Not all asset classes with forecasts are represented in every portfolio managed by the Multi-Asset Solutions Team. Data shown in the tables reflects the most recent data available. Asset class forecasts comprise inputs driven by proprietary Manulife Investment Management research and are not meant as predictions for any particular index, mutual fund, or investment vehicle. To initiate the investment process, the investment team formulates 5-year and 20-year plus risk/return expectations, developed through a variety of quantitative modeling techniques and complemented with qualitative and fundamental insight. Assumptions are then adjusted for a number of factors. This chart contains forecasts reflecting potential future events and is only as current as of the date indicated. There is no assurance that such events will occur, and the actual asset class return may be significantly different than that shown here. This material should not be viewed as a recommendation or a solicitation of an offer to buy or sell any investment products or to adopt any investment strategy. It is not possible to invest directly into an index. Past performance does not guarantee future results.}

Multi-Asset Solutions Team

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Nathan W. Thooft, CFA

CIO, Multi-Asset Solutions Team, Global Equities

Robert E. Sykes, CFA

Senior Portfolio Manager, Head of Asset Allocation, U.S., Multi-Asset Solutions Team

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James Robertson, CIM

Senior Portfolio Manager, Head of Multi-Asset Solutions, Canada, Head of Tactical Asset Allocation, Multi-Asset Solutions Team

Luke Browne

Senior Portfolio Manager, Global Head, Multi-Asset Solutions Team, Head of Multi-Asset Solutions, Asia

Geoffrey Kelley, CFA

Senior Portfolio Manager, Global Head, Systematic Equity Solutions, Multi-Asset Solutions Team

Benjamin W. Forssell, CFA

Client Portfolio Manager, Global Multi-Asset Team, Multi-Asset Solutions Team

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Eric Menzer, CFA, CAIA, AIF

Head of Advisory Solutions, Senior Portfolio Manager, Multi-Asset Solutions Team

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Important disclosures

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