Denmark-headquartered trading and investment house Saxo has just released its asset allocation outlook for the second quarter of 2025.

Jacob Falkencrone, global head of investment strategy at Saxo, says that investment opportunities are emerging outside US markets and tech, particularly in Europe and China, as the global economic landscape shifts.

However, he emphasised that diversification is critical. â€śAfter years driven by a handful of US tech giants, broad diversification across sectors, regions, and asset classes is essential for navigating increased volatility and uncertainty,” Falkencrone said in a note.

“High-quality fixed income – such as government, inflation-linked, and investment-grade bonds – plays a critical role in portfolios during periods of heightened volatility,” he continued. “With recession risks rising, allocating to fixed income is essential for reducing volatility, preserving capital, and providing dependable returns, especially if economic conditions worsen. Bonds act as a stabilising force, offsetting equity losses during downturns and enabling investors to stay invested rather than panic during volatile market swings.” 

Falkencrone also emphasised that equities still offer upside, but it’s important to look beyond the US.

He is overweight in European equities. “Europe is undergoing a major shift towards independence and self-reliance, driven by weakening US security commitments, deglobalisation, and a push for economic resilience,” he said. “This has triggered unprecedented investment in defence, infrastructure, technology, and renewable energy, supported by initiatives like Germany’s fiscal stimulus plan and the EU’s defence loan â€“ specifically favouring European over US suppliers,” Falkencrone continued. “For investors, this theme offers strong upside potential, backed by substantial government funding and policy momentum. Companies stand to benefit from reshoring efforts, local investment, and changing consumer preferences.” 

However, the success of this theme depends on Europe’s ability to execute its fiscal expansion effectively. Rising bond yields or political fragmentation within the EU could slow progress and dampen investor sentiment.

Falkencrone is overweight in European banks: â€śEuropean banks are poised to benefit significantly from Europe's robust fiscal expansion. Attractive valuations, improved credit conditions, and higher interest margins make this sector appealing as Europe's economic recovery gathers momentum.” 

However, he said that European banks face risks from geopolitical tensions, stricter regulations, and economic slowdowns, which could strain balance sheets and profitability. Delayed stimulus measures could impact lending growth.

“One way to gain exposure could be via the Amundi STOXX Europe 600 Banks UCITS exchange-traded fund (ETF), capturing diversified sector benefits as Europe's economy recovers,” he added.

He is also overweight in healthcare. “Healthcare remains one of the best-performing global sectors year-to-date, reflecting investor preference for defensiveness amid economic softness and uncertainty,” he said.

Falkencrone is also overweight in Chinese equities. “China's new domestic consumption-driven growth strategy and government stimulus offer attractive opportunities in consumer and technology sectors, especially given appealing valuations,” he continued.

However, investors should remain selective as structural challenges persist â€“ notably within the fragile property market and ongoing geopolitical tensions. Regulatory uncertainties could also limit foreign investor confidence and disrupt growth.

Vincent Mortier, group CIO of European asset manager Amundi, has also recently highlighted that the focus on equities is moving away from the US towards Europe and Asia.