Global stock markets reached new all-time highs during the first half of 2025, navigating concerns over trade tariffs and geopolitical flare-ups. Global equities saw a robust 9.47% return, with European markets surging 14.1% thanks to central bank rate cuts and government spending boosts. US equities also performed well, gaining 6.2% as worries about tariffs eased and the technology sector showed strong resilience. The bond market delivered positive returns too, with global investment-grade debt returning 7.3%.

Looking to the second half of the year, while some policy volatility and economic softness are expected, the peak uncertainty on trade tensions seems to have passed, and risks of a major downturn appear contained. The prevailing strategy is to maintain a balance between equities and fixed income, making tactical adjustments within each asset class.

A key theme is an expected short-term slowdown followed by medium-term growth. The worst fears about trade wars are subsiding, with US tariffs likely to be more targeted and lower than initially threatened. However, the impact of these tariffs on US prices and consumer spending will be a key story to watch in the coming months. A broader economic rebound is anticipated for 2026, supported by fiscal stimulus in Germany and a tax bill in the US.

Central banks are providing a tailwind. The European Central Bank (ECB) has already cut interest rates by 2% over the past year, and while further cuts are likely, current rates are seen as supportive of growth. In the US, the Federal Reserve is taking a more gradual easing path, with markets expecting rate cuts to begin in September as inflation cools.

Government spending is also set to energize economies. Germany has planned a €500 billion infrastructure fund, part of a wider European push that includes over €800 billion in defence spending. In the US, the "Big Beautiful Bill" aims to make tax cuts permanent while increasing defence and energy spending, a move projected to add $3.3 trillion to federal deficits.

For bond investors, yield curves are expected to continue steepening, meaning the premium for holding long-term bonds is rising. This is partly driven by the significant new bond issuance required to fund government spending, especially in Germany. With compensation for taking on credit risk being minimal right now, the focus is on higher-quality issuers and bonds with maturities in the 5-to-10-year range, which offer a more attractive risk-return profile.

The outlook for the stock market remains positive, driven by a balance of tariff risks and expansionary policies. In Europe, an improving business cycle, fuelled by fiscal spending and ECB rate cuts, supports a positive view, especially for the region's financially-oriented markets. In the US, the artificial intelligence boom has regained momentum and is seen as a long-term growth driver, particularly for tech companies that can translate revenue into profits regardless of the macroeconomic climate. Banks are also expected to benefit from steeper yield curves and higher loan demand.

Closer to home, Malta's economic outlook is bright, with GDP projected to grow at a strong 4% annually in the medium term, significantly outpacing the euro area. The nation's fiscal health is set to improve, with the deficit narrowing and public debt stabilizing. While trade negotiations between the US and EU pose a risk, Malta's service-driven economy is expected to be largely insulated from direct negative effects.

This positive economic forecast should bolster the local equity market. Key sectors like tourism and real estate are performing strongly, which is likely to drive investor confidence and support companies in related industries. The Maltese corporate bond market is also expanding, expected to surpass €3 billion this year as retail investors seek better returns for their cash. Finally, government bonds remain a stable investment, supported by Malta's strong fiscal position and the ECB's monetary easing, making them a reliable choice for risk-averse investors.

This document is issued by BOV Asset Management Limited ("the Company" and/or "BOV AM"). Opinions, estimates and projections in this publication constitute the current judgement of the author as of the date of this publication, and should not be construed as investment advice. The Company has obtained the information contained in this document from sources it believes to be reliable, but it has not independently verified this information contained herein and therefore its accuracy cannot be guaranteed. The Company makes no guarantees, representations or warranties and accepts no responsibility or liability as to the accuracy or completeness of the information contained in this document. The Company has no obligation to update, modify or amend this publication or to otherwise notify a reader thereof in the event that any matter stated therein, or any opinion, projection, forecast or estimate set for the herein changes or subsequently becomes inaccurate. Income from an investment may fluctuate and the price or value of the financial instrument described in this presentation, either directly or indirectly, may rise or fall. Furthermore, past performance is not necessarily indicative of future results. ESG is a set of criteria measuring the sustainability of companies from three perspectives - environmental, social and governance. To further demonstrate our commitment to ESG principles, the BOV Group is working to be ESG compliant in its offerings to its clients. However, currently, the investments underlying the financial products mentioned herein do not take into account the EU criteria for environmentally sustainable economic activities. Any investments in any of the Funds mentioned herein should be based on the full details of the Prospectus, Offering Supplements and KIDS, which documents may be obtained from the Company, Bank of Valletta plc branches and investment centres and other licensed financial intermediaries. BOV Asset Management Limited is licensed to conduct investment services in Malta under the Investment Services Act (Cap.370 of the laws of Malta) by the Malta Financial Services Authority. The BOV Investment Funds is a common contractual fund licensed by the Malta Financial Services Authority and qualifies as a UCITS. The Vilhena Funds SICAV p.l.c is licensed by the Malta Financial Services Authority and qualifies as a UCITS. Issued by BOV Asset Management Limited, registered address 58, Triq San Żakkarija, Il-Belt Valletta, VLT 1130, Malta