RBC WM thinks a Japan-US trade deal is likely but might not occur until after July’s elections for the upper house of Japan’s legislature. “Japan’s equity market has priced in tariff cuts, and price action related to this in the auto sector appears too optimistic,” RBC WM said in a note. Notwithstanding the political headwinds, RBC WM has a constructive view on the Japan equity market, as a sustainable 2 per cent inflation target seems in sight. Other factors should be supportive such as the renewed investment from friendshoring and onshoring, improving return-on-equity and shareholder returns, resilient domestic demand supported by high savings and wage hikes, inbound tourism, and elevated domestic retail inflows under the revamped Nippon Individual Savings Account scheme.

RBC WM believes that Chinese equities are likely to be largely range-bound in the second half of 2025, after a strong first half-year performance. “Two major performance drivers will likely be US-China trade negotiations and corporate earnings. While the worst-case scenario has been avoided, news on further trade negotiations would likely fuel market volatility,” RBC WM said. Meanwhile, investors are monitoring signs of fundamental recovery. With US tariff impacts starting to materialise, the firm thinks that investors will pay attention to earnings resilience and whether the earnings per share (EPS) recovery can support further valuation expansion. Nevertheless, the wealth manager anticipates that additional government reforms, such as greater market access, industrial policy changes, and policy stimulus, could potentially provide upside surprises for the market.

US and global equities
“The US economy and equity markets retain significant advantages over their international peers. Artificial intelligence investments continue to favour US-based software and technology infrastructure companies, and the potential for an increase in US onshoring of manufacturing may provide a boost much further down the line,” RBC WM said. Against this backdrop, the wealth manager would not chase the international outperformance seen this year, but also would not want to be underweight in international stocks in a long-term portfolio.

“A balanced portfolio of high-quality international stocks at reasonable valuations remains an important asset allocation component for long-term investors,” RBC WM said. Overall, the wealth manager thinks that the current situation warrants a watchful portfolio investment approach and no more than a market weight in global and US equities. Given the lingering economic and earnings growth risks, along with stretched valuations, RBC WM recommends investing in US equities up to but not above a normal, market weight, favouring dividend growth stocks and tech stocks. It believes that other regions, with valuations trading at a discount to US equities, provide attractive opportunities for diversifying portfolios. 

RBC WM suggests a modest underweight in UK equities. Quality UK large-cap stocks trading at a valuation discount to foreign competitors are an attractive opportunity for global investors, in its view. It also favours attractively valued financials, given their high level of shareholder returns via both dividends and share buybacks.

European equities
The introduction of new fiscal measures, with the EU aiming to boost defence spending and Germany spending more on infrastructure, should provide some support to the economy even as US tariffs act as a headwind. RBC WM believes that this stimulus could lift the EU GDP by 0.3 per cent in 2026 and 2027, mitigating the impact of tariffs. RBC Capital Markets expects GDP growth for the euro area to reach 1.6 per cent in 2026.

The firm prefers sectors likely to benefit from the fiscal stimulus, such as select industrials, including defence, and materials. In its view, banks should benefit from the region’s improved medium-term growth outlook and a steeper yield curve, while continuing to offer attractive shareholder returns via dividends and share buybacks. However, RBC WM is mindful that sectors subject to tariffs, as well as those exposed to a strong currency, are less likely to outperform.

Fixed income
RBC WM remains overweight in US Treasuries paired with an underweight for global developed market bonds. Slowing growth in the US despite an anticipated soft landing will likely mean a resumption of rate cuts from the Federal Reserve this year, in its view. Conversely, many global central banks such as the European Central Bank and the Bank of Canada – which have proceeded steadily with rate cuts – are now likely at the end of such cutting cycles. RBC WM reiterates a market weight stance on US fixed income with yields sitting well below multi-decade averages. Credit valuations are still too high globally, in its view, amid increasing growth risks, which leads it to continue favouring sovereign over corporate bonds. 

Near term, RBC WM prefers allocating for the UK to low-quality, investment-grade, short-duration bonds to cushion against potentially wider future spreads. It sees value in senior-ranked bank bonds, as well as consumer staples and communications sectors.

European fixed income
RBC WM believes that most eurozone governments are likely to continue running sizeable deficits in the near term, and risks of fiscal sustainability could come to the fore. Germany has the fiscal headroom to borrow, but France and Italy already have fiscal restrictions given their high debt levels. Elsewhere, it thinks that Spain, Portugal, and Greece’s debt levels are likely to improve. But euro area sovereign spreads relative to Germany have tightened, especially in the lower-rated nations and are now in richer territory. Therefore, RBC WM prefers an underweight position in the near term. For long-term investors, it thinks 10-year German bund yields above 2.6 per cent present an opportunity to consider adding to positions.

RBC WM also thinks that there are still opportunities in short-duration investment-grade bonds, with compelling yields and an income cushion to mitigate against potential spread widening.

Asia fixed income
RBC WM has a preference for investment grade over high-yield Asia credit. Looking at the second half of 2025, it expects Asia credit to remain a carry play where returns would be mainly driven by income, with a more defensive bias towards higher-quality credit. It prefers investment grade (IG) over high yield (HY) credit, given that much of the “Liberation Day” spread widening has already retraced. This leaves limited room for further compression, particularly in HY.

Nonetheless, RBC WM believes that Asia IG continues to offer attractive all-in yields, currently sitting at the higher end of historical ranges. Much of Asia ex-Japan IG remains anchored by domestic demand, and market expectations of a negative bond supply this year should keep the space well supported. Given the backdrop of moderate economic growth and ongoing macro risks, RBC WM favours positioning in higher-quality Asia IG names.