Investment manager Lazard has published its Global Mid-Year Outlook 2025, advising investors to reassess whether the drivers of asset returns in the last decade can be sustained as many of the assumptions underlying investing are now being called into question.

As the US becomes less predictable, Ronald Temple, chief market strategist at New-York headquartered Lazard, highlighted how Europe is becoming invigorated to make important structural changes that could lead to a more dynamic economy. Japan also appears to be in the early stages of an idiosyncratic improvement story that could positively impact returns over the long term.

Since the start of 2025, Temple said global GDP growth expectations have been downgraded, US inflation forecasts have increased, and rate curves have steepened. Geopolitical instability has also worsened with another kinetic Middle Eastern conflict. However, despite the policy turmoil of the first half of 2025, markets have remained remarkably resilient globally.

For investors, Temple believes that the backdrop of uncertainty is likely to persist. Not only will they have to juggle concerns about US trade, immigration, fiscal, and US Federal Reserve leadership decisions; they will also have to contemplate an increasingly dangerous geopolitical backdrop whether it relates to active wars or the potential for much more economically-consequential potential future conflicts.

Outlook
Looking forward, Temple expects the consequences of US policy changes to become more apparent in US economic and corporate profit data. “Higher inflation, slower growth, and weaker consumption are likely to lead to reduced earnings estimates in more directly affected sectors while sustained high interest rates could pressure stretched US valuation multiples,” Temple said. “Outside of the US, valuations are less demanding and, in many cases, the economic direction of travel is positive. This could lead to sustained outperformance of non-US equities after over a decade of significant underperformance.”

Indeed, many investors globally are questioning if American exceptionalism is reaching an end point now and contemplating whether and how much capital to reallocate to other options. Although timing tops and bottoms is extremely difficult, it is wise to assess when a trend might be nearing an end.

“This is not to say that I am bearish on US equities. Instead, my point is that the drivers of US outperformance are waning while other markets are beginning to offer more reasons for optimism,” Temple said. Successful investing often requires the ability to recognise whether a country or company is moving in a positive or negative direction in terms of growth. Temple believes that the US started from a clearly superior position but has become less predictable and in some cases has enacted policies that are negative for its competitiveness and future returns.

At the same time, he thinks that the new corporate governance rules could represent a positive turning point for Japanese companies’ returns on capital and the broader equity market. The eurozone also appears poised for better growth this year. “The eurozone and Japan, in very different ways, appear to be beginning to address some – but by no means all – of the challenges that have limited growth and shareholder returns in the past. If this positive shift is sustained, we could be at the very early stages of better economic and market outcomes in these regions,” Temple continued.

On China, Temple said there could potentially be some significant fiscal stimulus and structural reforms there that could change the trajectory of the economy as it muddles through a multi-year housing and confidence crisis, but the market appears to be cautious in the interim.

A number of other wealth and asset managers, such as DWS and Edmond de Rothschild Asset Management – pondering the fallout from US tariffs and shifts in equity markets since the early spring – have been opting for European over US equities. They believe that European equities still offer more opportunities. “There are basically three aspects arguing in favour of European stocks: first; the aspect of diversification, second, cheaper valuations, and third, the higher share of cyclical corporations in Europe,” Vincenzo Vedda, global chief investment officer at DWS, said in a note. Vedda is also constructive on Japanese stocks. See more commentary here.