Aberdeen House View: Equities, bonds, and infrastructure lead the way

We remain constructive on equities, particularly in emerging markets (EMs), but this is balanced with a positive stance on global government bonds and a high-conviction view on infrastructure.

Our outlook on the US dollar has shifted to neutral from negative. We remain cautious about certain segments of private credit.

The Aberdeen House View (Table 1) is designed to provide a framework around the macro and market outlook, helping our investment teams and clients make more informed decisions.

Macro

No recession yet

Central banks, including the US Federal Reserve (Fed) and several EM monetary policymakers’ central banks are cutting interest rates into what we expect to be a non-recessionary growth environment. Fiscal policy is set to become more supportive in the US and Europe, although we believe the UK is likely to tighten at its upcoming budget review. Trade tensions have eased, with a temporary truce in the US-China tariff dispute reducing uncertainty.

Equities

Emerging markets in focus

Corporate earnings growth remains robust, with US companies frequently outperforming analysts’ expectations. Admittedly, we’ve long been conscious of high US valuations and the narrow concentration of the US market.

Now, concerns about a possible artificial intelligence (AI)-related bubble appear to have gone mainstream. Our best assessment is that the AI driver of US markets still has some room to run. But with the AI theme at a much earlier stage in China, and equity valuations less challenging across EMs, this is where the Aberdeen House View sees more opportunities.

Sovereign bonds

Shorter duration favored

We are positive on government bonds, particularly those with shorter maturities, which we see as a useful balance to the equity view. Renewed Fed rate cuts and the prospect of a more dovish, Chair next year – should support bond yields. And government bonds can provide conditional diversification in the event of negative demand shocks.

But the House View prefers shorter-duration to longer-duration government bonds. This is because long-duration bond yields may remain pressured by higher debt issuance and reduced demand from traditional buyers.

EM debt and corporate bonds

Spreads tight but yields still attractive

We hold a modestly positive view on emerging market local-currency debt and global corporate bonds. While tight spreads – the extra yield investors demand to hold these bonds versus US government debt as compensation for additional risk – offer a limited valuation cushion, yields remain appealing relative to sovereign paper.

We believe EM debt should benefit from more interest rate cuts and controlled inflation, while corporate bond markets are supported by a relatively modest increase in defaults.

Private markets

Infrastructure stands out

Infrastructure remains a high-conviction strategy, driven by global needs in AI, defense, and energy. Private capital is increasingly required to fill funding gaps as government balance sheets face constraints. Global direct real estate is in the early stages of a cyclical recovery, with undersupply supporting returns, even in previously challenged sectors such as retail and offices.

We are neutral on private credit, where there has recently been an increase in some high-profile defaults amid a deterioration in underwriting standards.

Currency

The dollar moves to neutral

Our signal on the US dollar has been upgraded from negative to neutral, reflecting recent stability and less attractive alternatives among major currencies. Positioning in short-dollar trades has become stretched, while flows into dollar assets have resumed.

Risk management

Diversification remains key¹

Following a strong run in equities, future returns may be more modest and volatile, particularly if sentiment around AI shifts. Elevated economic, political and geopolitical risks underscore the importance of diversification and thoughtful portfolio construction.¹

Endnotes

¹ Diversification does not ensure a profit or protect against a loss in a declining market.

Important information

Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.

Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.

Fixed income securities are subject to certain risks including, but not limited to: interest rate (changes in interest rates may cause a decline in the market value of an investment), credit (changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral), prepayment (debt issuers may repay or refinance their loans or obligations earlier than anticipated), call (some bonds allow the issuer to call a bond for redemption before it matures), and extension (principal repayments may not occur as quickly as anticipated, causing the expected maturity of a security to increase).

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