Sovereign Wealth Funds Embrace Active Strategies and China Focus Amid Global Volatility

Economic

Summary:

A new Invesco report reveals that sovereign wealth funds and central banks managing $27 trillion are shifting toward active management, increasing exposure to Chinese tech sectors....

Active Management Gains Traction in a Fragmented Market

In a world of rising economic fragmentation and unpredictable market cycles, sovereign wealth funds are showing a clear shift in asset allocation strategy. According to the 2025 Invesco Global Sovereign Asset Management Study, large institutional investors particularly those overseeing more than $100 billion are increasingly turning to active management to better manage volatility and exploit selective opportunities. This move contrasts with the previous era of stability, during which passive strategies dominated due to their cost efficiency and market predictability.

Rod Ringrow, Invesco’s head of official institutions, underscored that the decline of “predictable” markets has forced funds to become more tactical. The move to active management is framed not as a temporary adjustment, but as a long-term recalibration in response to structural shifts, including inflation volatility, geopolitical risk, and policy uncertainty.

Wealth funds generated average returns of 9.4% in 2024, marking their joint second-best performance in the survey’s history. However, this outperformance does not appear to have diminished concerns about future challenges, including rising sovereign debt burdens and climate change risks over a 10-year horizon.

Dollar Still Dominates, But Long-Term Confidence Slips

Despite their evolving portfolio strategies, central banks remain cautious on currency diversification. While over 70% of the 58 central banks surveyed expressed concern about the long-term impact of growing US debt on the dollar, most remain skeptical that a credible alternative will emerge soon. Nearly 80% believe it would take more than two decades for another reserve currency to rival the greenback a notable increase from 58% just a year ago.

This cautious consensus suggests that while the dollar's long-term dominance is under scrutiny, the lack of viable alternatives, such as the euro or yuan, continues to anchor it as the global reserve standard. Only 11% of respondents viewed the euro as gaining momentum, compared to 20% last year, pointing to fading confidence in Europe’s ability to expand its influence in reserve portfolios.

Chinese Innovation Drives Strategic Investment Urgency

Perhaps the most striking finding from the survey is the growing enthusiasm among sovereign wealth funds for Chinese assets, particularly in innovation-led sectors. Nearly 60% of respondents intend to increase exposure to China over the next five years, with the number climbing to 73% among North American funds despite escalating tensions between the US and China.

This signals a reconfiguration of long-term portfolio strategies, where Chinese technology sectors such as artificial intelligence, semiconductors, cloud computing, electric vehicles, and green energy are now viewed with the same strategic urgency once reserved for Silicon Valley.

Ringrow attributed the trend to a sense of “FOMO” or fear of missing out, driven by China’s rapid technological progress and its positioning as a critical engine of future innovation. By contrast, only 13% of European funds expressed intentions to increase allocations to China, indicating regional disparities in risk appetite and geopolitical tolerance.

Private Credit and Digital Assets Emerge as New Frontiers

In the quest for income resilience and diversification, sovereign wealth funds are expanding into private credit. The proportion of funds allocating to this asset class has risen from 65% to 73% year-over-year, with half of them actively increasing their positions. The report highlights private credit as one of the most decisive and consistent trends in sovereign allocation strategies, driven by higher yields and lower correlation with public markets.

Simultaneously, digital assets are carving out a role in reserve management, particularly among emerging market wealth funds. While Bitcoin remains the most commonly considered asset, with 75% of respondents expressing interest, nearly half now also view stablecoins typically pegged to the US dollar as a viable investment vehicle. This marks a cautious but growing exploration of blockchain-based financial instruments within sovereign portfolios, particularly for liquidity and hedging use cases.

Strategic Realignment Amid Volatility

The 2025 Invesco report illustrates a significant strategic pivot among sovereign wealth funds and central banks toward active management, China-centric investment themes, and alternative asset classes. While the US dollar remains dominant, there is a widening recognition of its vulnerabilities. Meanwhile, the embrace of Chinese tech and private credit reflects a shift toward sectors and strategies deemed better suited to a more volatile and fragmented global landscape.

As uncertainty deepens around fiscal sustainability, inflation trajectories, and geopolitical realignments, these funds are reshaping their approach not to chase returns, but to fortify resilience. The next few years will determine whether these recalibrations serve as successful hedges against the seismic shifts currently defining the global financial order.

Source: Reuters

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Daniel Carter

Political

U.S. President Donald Trump said on Sunday he will send Patriot air defense missiles to Ukraine, saying they are necessary to defend the country because Russian President Vladimir Putin "talks nice but then he bombs everybody in the evening."

Trump did not give a number of Patriots he plans to send to Ukraine, but he said the United States would be reimbursed for their cost by the European Union.The U.S. president has grown increasingly disenchanted with Putin because the Russian leader has resisted Trump's attempts to negotiate a ceasefire between Ukraine and Russia.

Ukrainian President Volodymyr Zelenskiy has asked for more defensive capabilities to fend off a daily barrage of missile and drone attacks from Russia.

"We will send them Patriots, which they desperately need, because Putin really surprised a lot of people. He talks nice and then bombs everybody in the evening. But there's a little bit of a problem there. I don't like it," Trump told reporters at Joint Base Andrews outside of Washington.

"We basically are going to send them various pieces of very sophisticated military equipment. They are going to pay us 100% for that, and that's the way we want it," Trump said.

He plans to meet NATO Secretary General Mark Rutte to discuss Ukraine and other issues this week.

Source: Reuters

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Henry Thompson

New Zealand retail card spending fell in the second quarter, adding to signs that an initial spurt of economic growth early this year has all but disappeared.

Purchases on debit and credit cards at retail stores fell 0.7% from the first quarter, when it was unchanged, Statistics New Zealand said Monday in Wellington. The value of spending is lower than in the year-earlier quarter when the economy was entering a deep depression.

Sluggish consumer spending mirrors recent data showing the services and manufacturing industries remained in contraction in the month of June. The slowdown in domestic demand suggests gross domestic product barely expanded in the second quarter after 0.8% growth in the three months through March.

Sentiment is being challenged by a soft housing market, rising unemployment and a high cost of living. While home-loan interest rates are falling, many borrowers on fixed-terms are yet to get the full benefit until their mortgages roll over later this year, and are watching their budgets closely.

Today’s report showed spending on discretionary items such as hospitality, apparel, motor vehicles and durable goods such as appliances fell in the quarter. Purchases of consumable items such as groceries gained.

Household confidence may also be dented by the Reserve Bank’s decision last week to keep the Official Cash Rate unchanged at 3.25%, although policymakers did signal further cuts are expected.

At the same time, business confidence has been buffeted by uncertainty over US tariff policies and their impact on global economic growth.

Earlier Monday, Business New Zealand and Bank of New Zealand reported that the services industry contracted for a fifth straight month while the organizations last week said manufacturing had shrunk for a second consecutive month.

“The time line for New Zealand’s long-awaited economic recovery just keeps getting pushed further and further out,” said Doug Steel, senior economist at BNZ in Wellington. He expects GDP contracted in the second quarter.

Source: Bloomberg Europe

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Michael Ross

China–U.S. Trade War

President Trump is pushing through with his tariff agenda, unveiling a new batch of letters to country leaders outlining tariffs on goods imported from their countries beginning in August and a warning to BRICS nations.

Trump announced a 35% tariff on Canadian goods late, claiming Canada had "financially retaliated" to earlier duties. He followed that up this weekend with promises of 30% duties on Mexico and the European Union.

In an interview with NBC News published late Thursday, Trump also floated 15% to 20% blanket tariffs on most trading partners, higher than the 10% level currently in effect.

The fresh tariff salvos capped a week in which Trump sent a barrage of tariff letters to over 20 trade partners, setting levels of 20% to 40% — except for a 50% levy on goods from Brazil in a move that waded into the country's domestic politics.

Meanwhile, Trump also has confirmed 50% copper import tariffs from Aug. 1 to match steel and aluminum. Trump's copper tariffs are also set to include the kinds of materials used for power grids, the military and data centers, a Bloomberg report highlighted on Friday.

As markets focus on US talks with key partners on possible deals, here is where things stand:

● Vietnam: Trump said a deal with Vietnam will see the country's imports face a 20% tariff — lower than the 46% Trump had threatened in April. He also said Vietnamese goods would face a higher 40% tariff "on any transshipping" — when goods shipped from Vietnam originate from another country, like China. According to reports, Vietnam's leadership was caught off guard by Trump's announcement last week that it agreed to a 20% tariff and is now seeking to lower the rate.

● India: Trump's tariffs on Brazil have raised the stakes for India, another member of the BRICS coalition. Bloomberg reported that the countries are working toward a framework deal that could see US tariffs on goods from India drop below 20%.

Source: Yahoo Finance

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Gerik

Economic

China–U.S. Trade War

Broad-Based Tariff Surge Targets Allies and Emerging Powers Alike

President Donald Trump has unveiled a wave of new tariffs, dramatically raising duties on imports from key allies and emerging markets in what appears to be a strategic escalation of his protectionist trade agenda. In a series of letters addressed to global leaders, Trump confirmed that imports from Canada, the European Union, and Mexico will face new tariffs ranging from 30% to 35%, set to take effect in early August. These latest measures expand on his earlier 10% tariff framework and hint at a broader reshaping of US trade relations.

Canada, accused by Trump of engaging in “financial retaliation,” will now face a 35% tariff rate. Meanwhile, both the EU and Mexico are subject to 30% duties, despite ongoing negotiations. These announcements follow a week marked by rapid-fire tariff declarations, with Trump sending over 20 letters to trade partners, some proposing duties as high as 50%.

Global Markets Brace for Cross-Sector Impact

Trump’s tariff program is increasingly sector-specific and now includes a 50% levy on copper imports, matching previous rates applied to steel and aluminum. These tariffs are likely to affect key supply chains in power infrastructure, military procurement, and data center construction. With copper's industrial applications broad and deeply integrated into global production, this decision could have ripple effects across multiple advanced economies.

Bloomberg reports that these copper duties represent more than a political message they could directly disrupt high-tech sectors and defense manufacturing, compounding the impact of the existing metal tariffs.

Vietnam and India Caught in Strategic Crossfire

The tariff offensive is not limited to North America and Europe. Vietnam, a critical trade partner in Southeast Asia, was surprised by Trump’s declaration that the country had accepted a 20% import tariff. While lower than the previously threatened 46%, this rate was not part of any formally signed agreement according to Vietnamese officials. Compounding the confusion, Trump warned of a 40% penalty on any “transshipped” goods referring to products that pass through Vietnam but originate in third-party nations, notably China.

India also finds itself under growing scrutiny as the US imposes a 50% tariff on Brazilian imports, a move that could be extended to other BRICS nations. Talks between Washington and New Delhi are reportedly underway to secure a trade framework that might reduce Indian tariff exposure below the 20% level. However, the lack of transparency in the negotiation process has raised concerns among Indian policymakers and exporters.

Strategic Pattern or Tactical Disruption?

Trump’s pattern of making broad threats, only to revise or delay them later, has complicated the ability of markets and policymakers to anticipate actual implementation. However, the scale and specificity of the latest announcements suggest a more deliberate and sustained effort to reset global trade norms. The consistency of the August 1 effective date across multiple letters also raises the likelihood that these tariffs will indeed materialize.

In interviews, Trump has floated the idea of applying 15% to 20% blanket tariffs on most US trading partners, indicating that this campaign may evolve into a generalized tariff regime far beyond targeted retaliation. While such measures would face legal and diplomatic pushback, they reflect a shifting baseline in US trade posture from bilateral deal-making to system-wide economic leverage.

Rising Global Trade Fragmentation

The escalation of tariffs across continents, sectors, and political blocs reveals a strategic pivot in US trade policy one that may have long-lasting implications. Markets are beginning to adjust to a more fragmented and politically driven trade environment. While negotiations with some nations remain open, the sheer breadth of announced tariffs signals an assertive US stance that could reshape trade flows, disrupt supply chains, and provoke retaliation.

With less than three weeks until implementation, businesses, governments, and investors are on alert. Whether Trump’s threats will translate into action or follow the pattern of last-minute reversals will determine whether this marks a trade policy climax or merely another episode in a volatile global economic narrative.

Source: Yahoo Finance

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Gerik

Economic

Forex

Muted Currency Response to Tariff Escalation

Global currency markets opened the week with a restrained reaction following US President Donald Trump’s weekend declaration of 30% tariffs targeting European and Mexican imports. While the euro slipped to a three-week low and the Mexican peso edged lower, broader foreign exchange volatility was limited, reflecting both trader fatigue and cautious skepticism toward the likelihood of immediate enforcement.

Trump made the tariff announcement via separate public letters addressed to European Commission President Ursula von der Leyen and Mexican President Claudia Sheinbaum, emphasizing an August 1 implementation date. Both the EU and Mexico described the tariffs as unfair, disruptive, and detrimental to ongoing trade negotiations. Despite this, they reaffirmed their preference for dialogue, with the EU choosing to extend its suspension of countermeasures into early August.

Limited Selloff in Euro and Peso Reflects Investor Caution

In early Monday trading, the euro dropped 0.15% to $1.1675, its weakest level in three weeks. The US dollar rose 0.2% against the Mexican peso to 18.6630. These modest currency moves suggest investors remain hesitant to fully price in the geopolitical risk until confirmation of tariff execution emerges.

Elsewhere, currency shifts were even less pronounced. Sterling moved only slightly lower to $1.3485, while the yen strengthened by 0.1% to 147.27 per dollar. The Australian dollar inched up 0.02%, and the New Zealand dollar slipped 0.07%, underscoring a broadly subdued environment.

Resilience or Complacency in Currency Markets?

Analysts are split on interpreting the market’s reaction. Taylor Nugent of National Australia Bank noted that investors may either be displaying resilience or underestimating the longer-term economic impact of these trade tensions. The lack of a selloff despite a clear tariff timeline has raised concerns that traders have grown desensitized after repeated delays and reversals in Trump’s tariff strategy.

Complicating the outlook is the memory of the July 9 reciprocal tariff deadline, which passed without any new measures being implemented. As such, markets remain reluctant to price in dramatic dislocations until concrete actions are taken.

Tariff Policy Entangled with Fed Independence Debate

Adding to the uncertainty, Trump once again publicly criticized Federal Reserve Chair Jerome Powell, suggesting on Sunday that Powell’s resignation “would be a great thing.” This comment renews concerns about the independence of the Federal Reserve and introduces an additional layer of political risk that could weigh on monetary policy credibility.

Investors are closely watching upcoming US inflation data due Tuesday, which could provide further clarity on the Federal Reserve’s policy path. Markets currently anticipate just over 50 basis points of rate cuts by year-end, but rising inflation or unexpected political developments may quickly alter that trajectory.

China’s Growth Data Also in Focus

Beyond the tariff and Fed narratives, investors are preparing for the release of China’s second-quarter GDP figures, also scheduled for Tuesday. With early signs of economic deceleration amid trade tensions and deflationary pressures, the data could reinforce concerns about global growth fragility, especially as the world’s second-largest economy continues to feel the weight of slowing industrial demand and strained bilateral ties with the US.

Despite Trump’s latest trade threat, the currency market’s muted response reveals a wait-and-see attitude shaped by past policy volatility. The euro and peso have weakened slightly, but investors are reluctant to overreact ahead of clearer signals on implementation. Whether this calm reflects genuine resilience or market complacency will become clearer as the August 1 deadline approaches and as inflation and GDP data test the market’s tolerance for geopolitical and economic uncertainty.

Source: Reuters

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Gerik

Economic

Tariff Escalation Poses a Renewed Market Stress Test

Global financial markets, long accustomed to President Trump’s combative trade rhetoric, now confront a fresh credibility test. On Saturday, Trump escalated his campaign with a declaration that 30% tariffs on European and Mexican goods will take effect starting August 1. This announcement arrives at a time when markets have largely priced in political brinkmanship, assuming Trump would eventually backtrack as he often has in the past.

Investors must now assess whether this latest move signals a true policy shift or is yet another negotiating tactic. JPMorgan CEO Jamie Dimon has previously warned of growing market complacency toward trade risks, and Trump's renewed threat appears designed to shock markets out of their assumption that tariff warnings are empty threats.

Market Reactions Hint at Cautious Reassessment

Early indicators in global currency markets reveal a subtle but noticeable change in sentiment. The dollar and the yen both traditional safe havens began to gain ground, while risk-sensitive currencies like the euro and the Australian dollar slipped. The euro, which had recently reached its highest level against the dollar since 2021, saw renewed weakness as traders reconsidered the region’s trade vulnerability.

Similarly, the Mexican peso, which had touched a one-year high against the dollar on July 9, now faces pressure as the country becomes an explicit target of the new trade measures. While Mexican exports under the USMCA agreement are largely exempt, the psychological impact of the 30% tariff decree is considerable.

Meanwhile, Bitcoin surged to a new record high above $119,000 on early Monday trading, possibly reflecting a hedge against growing economic uncertainty. This movement reinforces Bitcoin’s current role as a speculative safe haven in periods of monetary or geopolitical instability.

Beyond Tariffs to Institutional Stability

Markets are not only digesting tariff shocks. The Trump administration’s intensifying criticism of Federal Reserve Chair Jerome Powell has introduced an additional destabilizing factor. Reports suggest that some officials are building a legal framework to remove Powell from the Fed’s Board of Governors a move that would dramatically undercut central bank independence.

Deutsche Bank strategist George Saravelos warned that forced removal of Powell could unleash sharp declines in the dollar and Treasury markets. A 3–4% drop in the trade-weighted dollar and a 30–40 basis point spike in Treasury yields would be plausible in such a scenario, according to his projections. The risk of politicized monetary policy, especially regarding the Fed’s swap lines with foreign central banks, would likely lead to a sustained increase in perceived market risk.

Markets Grapple with Tariff Ambiguity

Financial markets have struggled to model the risk associated with Trump’s tariff campaign, largely because of its inconsistency. Initial reactions to the April 2 “Liberation Day” tariff announcements included a sell-off in both equities and Treasuries. However, subsequent delays in implementation reversed those losses. The pattern has nurtured investor skepticism about follow-through, muting the typical negative reaction to protectionist measures.

Trump’s weekend statement punctured optimism that a deal with the EU might be near. While he invited partners to continue negotiations, the letter left little room for immediate optimism. Some analysts, like Brian Jacobsen of Annex Wealth Management, argue that while markets may appear calm, they are underestimating the true severity of the threat. A 30% tariff is not merely symbolic it is a materially damaging policy for global trade flows.

Yet, this ambiguity may also explain why reactions remain restrained. Gabriela Siller from Grupo Financiero Base noted that the market appears unconvinced that the August 1 deadline will be strictly enforced. Many suspect that the tariffs, even if formally announced, may not be fully collected or executed, as was the case with prior threats under the IEEPA framework.

Suspended Between Complacency and Crisis

As of now, investor psychology appears to balance between conditioned skepticism and emerging concern. Friday’s modest stock retreat from all-time highs, paired with the dollar’s strongest weekly gain since February, suggests a cautious but not yet panicked posture. Much hinges on whether additional US tariff actions actually materialize or are walked back in favor of negotiated adjustments.

The potential dismissal of Powell or tangible enforcement of 30% tariffs would likely jolt markets into sharper repricing. Until then, sentiment remains suspended in ambiguity fragile, but not broken. The next two weeks will serve as a litmus test for whether financial markets continue to discount geopolitical escalation or begin pricing in the systemic risks of politicized trade and monetary policy.