Staying the Course Amidst Noise
The financial world is entering yet another phase of turbulence. The headlines of this quarter revolve around three major forces: uncertainty around the US dollar, the escalation of new global conflicts, and the relentless march of artificial intelligence. Each has the potential to unsettle markets, but none should deter investors from their long-term course.
The message at the heart of this newsletter is simple: do not panic, and do not let temporary noise derail your essential financial goals. As Aswath Damodaran often reminds us, no investment opportunity is worth endangering one’s financial stability or lifestyle. Ray Dalio adds an equally important lesson—anticipate crises, preserve wealth, and grow by positioning ahead of potential shocks.
Volatility and inflation are not reasons to freeze. Rather, they underscore why investors should remain invested, particularly in areas like private markets, which offer insulation from short-term swings and long-term compounding opportunities.
Global Issues and Strategic Outlook
The Debt Overhang and Policy Responses
Debt remains the single largest macroeconomic challenge for the United States and many advanced economies. Ray Dalio (July 2025) emphasizes that governments in debt-laden economies almost always resort to the same toolkit: lowering interest rates and devaluing their currency. This approach stimulates growth and inflates asset prices in the short run, but it extracts a high cost over the long term.
The side effects are significant:
- Lower real returns for holders of bonds and cash, as devalued currencies erode purchasing power.
- Higher inflation, reducing the real yield available to savers.
- Even higher debt burdens, as stimulus becomes self-reinforcing.
This playbook was visible in the stagflationary period between 1971 and 1981, when wealth shifted dramatically, currencies weakened, and inflation soared. Today’s unprecedented debt levels suggest a similar inflection point could be approaching.
Dalio recommends a measured allocation to gold and inflation-linked bonds (ILB). Gold, at around 15% of a portfolio, has proven to be a powerful diversifier across cycles, especially when paired with bonds that adjust to inflation. This balanced approach can allow investors to hedge against both monetary easing and rising inflation, but do not offer dividend (gold) and are difficult to access for foreign investors (ILB).
Marc Faber reinforces the urgency of these warnings. Citing the record growth of US M2 (now above USD 22 trillion), he argues that the Federal Reserve has “completely botched the job,” and that inflationary risks will remain elevated for years.
Artificial Intelligence: Promise and Risk
Artificial intelligence continues to dominate both innovation and investor sentiment. Yet the investment narrative is not without risk. Steve Eisman, reflecting on parallels to the dot-com bubble, warns that massive capital inflows into AI may exceed the sector’s ability to deliver meaningful progress. If advancements between iterations (such as GPT-4 to GPT-5) become marginal, the valuations of AI leaders may come under pressure.
Just as the internet boom produced both Amazon and countless failures, the AI boom may deliver transformative winners but also many casualties. A “painful digestion phase” could be inevitable, particularly in the most overhyped corners of the market.
The Dollar and the Search for Alternatives
The US dollar’s global supremacy is increasingly under question. DBS’s CIO Insights (Q3 2025) highlight how Trump’s controversial policy decisions have eroded confidence in USD assets. The trajectory of the dollar appears weaker, creating opportunities in alternative safe-haven currencies such as the euro and yen.
While the euro offers strong short-term momentum, investors should avoid overcommitting for the long run, especially in buy-and-hold strategies. The yen, meanwhile, continues to offer reliable diversification benefits, particularly in an environment where the dollar weakens structurally.
Asset Class Review
Cash and Fixed Income
Cash is no longer the safe refuge it appears to be. With inflation eroding purchasing power, DBS assigns an underweight to cash positions. Similarly, USD-denominated bonds are unattractive, offering negative real returns once inflation is accounted for. The only exception in fixed income lies with inflation-linked bonds, which offer insurance against sticky inflation.
Gold and Alternatives
Gold remains one of the most attractive diversifiers and we prefer it to crypto. Central banks continue to accumulate reserves, underscoring its enduring role in global finance. While it does not yield dividends or coupons, its ability to preserve capital in times of crisis justifies overweight positions. Low-cost, exchange-traded products such as SGLN or IGLN are efficient ways to gain exposure.
Private markets, meanwhile, offer differentiated opportunities. Infrastructure stands out as a structural theme, aligning with global trends in urbanization, energy transition, and supply-chain resilience. BlackRock’s BPIF provides exposure to private equity with a reasonable fee structure, though liquidity constraints remain. Vanguard, in partnership with HarbourVest and Wellington, is exploring hybrid public-private strategies, though access for retail investors is still limited. For listed exposure, the iShares Global Infrastructure UCITS ETF provides a cost-efficient vehicle (TER ~0.65%).
Equities: Global Perspectives
Asia ex-Japan is the standout region for long-term equity allocations. After years of underperformance relative to the US, fundamentals are shifting decisively:
- Intra-regional trade flows are rising.
- China’s policy support is catalyzing growth across neighbors.
- Massive household savings (USD 20 trillion in China, USD 6 trillion across North Asia) are poised to enter capital markets.
- Lower global interest rates would further benefit the region by reducing capital outflows and stabilizing currencies.
Valuations are compelling, with a forward P/E of 14 and a P/B of 1.9. Sectorally, financials are inexpensive (P/E 10), while healthcare trades at elevated multiples (P/E 32). DBS recommends overweight allocations to China, India, Singapore, and Indonesia, while underweighting Thailand and the Philippines.
US equities require nuance. In the short term, elevated valuations—particularly in technology (P/E 32) and real estate (P/E 38)—justify caution. Yet in the long term, the US remains indispensable. Broad-market ETFs such as Vanguard’s VTI or VOO, perhaps with a tilt toward value sectors, offer efficient access while avoiding speculative sector bets.
Europe and the euro present short-term tactical opportunities, but long-term prospects remain weaker. Japan is best held at neutral; investors sufficiently allocated over the past three years need not add further.
Emergent Portfolio Themes
Beyond traditional asset allocation, structural themes are shaping opportunities:
- Automation and Humanoids: Rising labor costs, reshoring, and demographic decline are accelerating the need for robotics and automation. This theme will underpin industrial and technological growth for decades.
- Defense and Aerospace: As geopolitical tensions escalate, defense spending is rising sharply. Aerospace, cybersecurity, and military technologies are positioned to benefit.
- Sectoral Divergence: Wide differences in relative valuations across geographies and industries create opportunities for disciplined investors. For example, US healthcare trades at a discount compared to Asian peers, suggesting value opportunities.
The best strategy however not to chase narrow sector ETFs, which often carry high fees and increase portfolio complexity. Thus, we do not suggest tactical opportunities (short-term overweight in euro-denominated assets, with caution on long-term commitments) nor thematic positioning (automation, defense, and infrastructure as enduring global trends) despite their apparent attractivity.
Instead, investors should rely on broad, low-cost vehicles, layering selective thematic exposure where conviction is highest.
Portfolio Implications and Strategy
The message for Q3 2025 is one of balance and discipline for long-term wealth maintenance and portfolio growth:
- We avoid: Cash and USD bonds, given poor real returns. Selective US equities, favoring broad indices with a value tilt rather than speculative sector bets.
- We favor: Private markets of opportunities are available, and Asia ex-Japan equities, where structural growth and attractive valuations align.
Above all, portfolios should remain aligned with clearly defined financial goals. Complexity is not a substitute for resilience; simplicity, diversification, and cost discipline remain the bedrock of long-term success.
Sources
- DBS CIO Insights Q3 2025: The Global Pivot
- Ray Dalio (July 1, 2025): The Most Important Principle to Keep in Mind When Thinking About Large Government Debts and Deficits
- Marc Faber (August 1, 2025): Morality as a Pre-Condition for Capitalism
- Aswath Damodaran (July YouTube Interview): Ongoing insights on valuation, risk, and discipline
- Steve Eisman (September 2025 YouTube Interview): AI risks and lessons from the dot-com bubble
Guide Finances 