Hanan Investment Cautious on U.S. Stocks, Sees 1% Growth Risk

Hanan Investment has adopted a more cautious stance towards the U.S. stock market, citing increased risks associated with global economic growth and recent policy changes. The firm's analysis highlights that the Trump administration's policies, including reduced immigration, federal government spending cuts, and increased tariffs, are likely to slow down the U.S. economy, potentially leading to a growth rate below 1% for the year. These measures are expected to cause supply shocks, driving up inflation in the short term, with the Consumer Price Index (CPI) projected to rise to 4.5% or higher by the fourth quarter.

In contrast, Hanan Investment views European and emerging markets more favorably. These regions have shown economic data that exceeds expectations and offer relatively attractive valuations. The firm anticipates that these markets may continue to outperform the U.S. due to their economic resilience and lower valuations. Additionally, the geopolitical landscape, including trade tensions, is driving investors to seek diversification and growth opportunities in these regions.

For Asian countries, excluding China, the U.S. tariffs are seen as a negative demand shock, which could hinder economic growth and suppress inflation. The decline in fuel and hard commodity prices is expected to further exacerbate downward pressure on inflation, creating more room for monetary policy easing in Asia. The firm predicts that Asian countries will have the space to lower interest rates and reduce yields due to their low inflation rates.

Hanan Investment recommends government bonds and cash as safe-haven assets to hedge against economic downturns. If economic data clearly indicates a recession, the firm may increase its allocation to longer-term bonds. In a scenario where the economic outlook worsens significantly, corporate bonds are expected to underperform, but U.S. investment-grade bonds are likely to outperform high-yield bonds.

In the short term, Hanan Investment prefers emerging market dollar bonds over U.S. credit due to their attractive valuations and potential benefits from a weakening U.S. dollar. Asian dollar bonds may also receive support from stable fundamental factors in Asia and a net negative supply of bonds maturing in 2025.

Looking ahead, Hanan Investment maintains a defensive stance on risk assets amid increasing global uncertainty. The firm continues to favor government bonds as a hedge against the rising risk of economic recession. As the global environment becomes more volatile, predicting market outcomes becomes increasingly challenging, reinforcing the firm's cautious approach.