Discussions regarding customs tariffs and geopolitical tensions were the main focus in the first six months of the year on the financial markets. Where are the markets headed in the second half of 2025?

In our Funds check series, fund managers from selected funds look back on the past year's performance and give their assessment of what we can expect for the rest of the year. (Please note that forecasts are no reliable indicator of future performance and that investing in securities involves risks as well as opportunities.)

Summary

  • Within the first three months, we reduced the number of securities in the fund by approximately 25% in order to pursue a more focused approach.
  • Due to the uncertainties in the USA, we reduced US technology shares while increasing our exposure to Europe, particularly in the financial sector. We also added US banks to the portfolio.
  • If inflation in the USA does not rise again, one or two interest rate cuts by the Fed are possible by the end of the year, which should have a positive impact on risky assets.
  • We are maintaining our increased exposure to Europe in the portfolio and are prepared to increase our US exposure on a discretionary basis once there is more clarity regarding the economic and earnings outlook.

Fund manager Tamàs Menyhárt
(c) Samuel Kreuz

Fund & Performance

ERSTE RESPONSIBLE STOCK GLOBAL is a sustainable equity fund that primarily invests worldwide in shares of selected companies in the developed markets. The fund's investment process is based on fundamental business analysis. When selecting stocks, high-quality, high-growth companies are used. Investing in shares of companies that are pioneers in terms of ecological, social and governance aspects is at the forefront of the investment decision. A holistic ESG approach also takes ethical aspects into account.

Note: Please note that an investment in securities entails risks in addition to the opportunities described. Past performance is not a reliable indicator of future performance.

The performance is calculated in accordance with the OeKB method. The management fee as well as any performance-related remuneration is already included. The issue premium which might be applicable on purchase and as well as any individual transaction specific costs or ongoing costs that reduce earnings (e.g. account- and deposit fees) have not been taken into account in this presentation.

Commentary by fund manager Tamàs Menyhárt

What sort of conclusion do you draw from the first half of 2025 on the capital markets?

In the first half of the year we experienced increased volatility, political uncertainty due to Trump's tariffs, and a mixed performance on global equity markets (with Europe outperforming the USA significantly). European equities got off to a strong start at the beginning of the year, driven by positive factors. These included, in particular, the German federal election, which was expected to bring substantial fiscal policy measures. The main beneficiaries were the DAX and the ATX, which both gained over 20% by the end of May.

The European markets also benefited from the ECB, which cut interest rates four times in 2025 (N.B. the key-lending rate currently stands at 2%). The US Fed, on the other hand, kept its key-lending (i.e. Fed funds) rate unchanged in the range of 4.25% to 4.5%. US equities have had a difficult year so far, mainly due to DeepSeek and the tariff issue.

The news surrounding DeepSeek (a low-cost AI model from this Chinese company) caused nervousness among market participants regarding the major US tech shares, as investors questioned the dominant market position of these companies. However, the Q1 reporting season brought calm to this sector, as many of the Magnificent 7 companies reported robust growth and a solid business outlook.

Liberation Day led to a very sharp sell-off on the US market (S&P 500 down almost 20% from its all-time high), but US equities quickly found their way back up as the Trump administration had so far opted for a more conciliatory approach in the tariff negotiations. The uncertainty in the United States led to a significant weakening of the USD, which had a negative impact on US investments by euro investors. The fund had achieved a performance of -7,9% (as of 2 July) in the year to date.

 

How did you position yourself in this environment?

Within the first three months, we reduced the number of shares in the fund by approximately 25% in order to pursue a more focused approach. At the beginning of the year, we responded to the trends described above by reducing US technology and increasing our European exposure, including in the financial sector. Exposure to clean energy was significantly reduced due to the negative regulatory environment. Following the positive Q1 figures and improved sentiment, we increased our IT exposure again. In April, we added major US banks to the portfolio, investing in JPMorgan, Goldman Sachs and Citigroup. T-Mobile US, Deutsche Telekom, and Progressive were also new additions.

 

Please note: the companies listed here have been selected as examples and do not constitute any form of investment recommendation.

 

What do you expect for the second half?

We expect European equities to remain ahead in 2025 as a whole. They are still significantly undervalued compared to US equities, and there are plenty of investment triggers that could have a positive impact (ceasefire in Ukraine, economic upturn in China). One of the key questions for the second half of the year is whether the USA can avoid a tariff-induced recession. We are optimistic here and expect S&P 500 companies' earnings to grow by almost double digits in this fiscal year.

However, much depends, of course, on what the final tariffs will look like after the negotiations. If inflation in the United States does not rise again, one or two interest rate cuts by the Fed are possible by the end of the year, which should have a positive impact on riskier assets. We are maintaining our increased exposure to Europe in the portfolio and are prepared to add to our US holdings on a discretionary basis once there is more clarity regarding the economic and earnings outlook.

 

Please note: investing in securities involves risks as well as opportunities.

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