Chart in Focus

MACRO

Electrifying gains: Renewables beat coal for the first time in 100+ years

The Iran conflict has served as a reminder of the global economy’s dependence on imported oil and gas. It has also highlighted why having more non-fossil fuels as part of the global energy mix is potentially positive for energy security.

The energy transition is a complex long-term structural shift that will unfold in a non-linear fashion. Both setbacks and leaps forward are going to happen along the way, but the overall direction of travel is set.

Rising electricity demand is brightening prospects for a variety of companies that are enabling electrification. For utilities, that means grid modernisation and expansion are becoming important drivers of growth potential. Firms involved in the provision and maintenance of transmission systems, grid automation software and other infrastructure that help integrate renewable sources into the grid are also potential beneficiaries. Another area with strong growth prospects is among firms whose products can improve data centre energy efficiency amid the AI boom. 

MACRO

A tale of two consumers: Resilient spending amid faltering sentiment

US consumer spending has remained resilient, even as confidence has deteriorated. This divergence is not a contradiction; rather, it reflects a more bifurcated economy, where strength is concentrated in select pockets and risks are becoming increasingly asymmetric. This has resulted in a ‘K‑shaped’ dynamic in which higher‑income segments remain resilient while more vulnerable cohorts face mounting pressure.

Consumption is holding up largely because of who is spending. Higher‑income households — accounting for just over half of total US personal income — remain relatively insulated from inflation and a softening labour market. Their continued spending, particularly on services, is sustaining aggregate demand. In contrast, delinquencies are rising among lower‑income households. As a result, headline growth is increasingly being supported by a narrower base of consumers.

Spending resilience has also found support from households drawing down savings to smooth consumption. But while this supports near‑term growth, it is not without cost. As savings buffers erode, consumption will become more sensitive to income growth and labour‑market conditions. At the same time, declining consumer sentiment points to concerns around persistent inflation, driven by heightened uncertainty around supply dynamics and broadening cost pressures.

This K‑shaped environment underscores a more selective opportunity set for investors. Exposure to structurally supported demand and higher‑income consumers is likely to be rewarded. At the same time, inflation uncertainty remains elevated, with the path to sustained disinflation unlikely to be linear, reinforcing the case for inflation‑aware portfolio construction.

Seemingly robust headline data should also be interpreted with caution, as they may mask underlying fragilities, highlighting the need for disciplined risk management and a focus on the quality and drivers of growth rather than aggregate strength alone.

FIXED INCOME

How could higher oil prices affect emerging markets?

With oil prices volatile in the wake of events in the Middle East, how could a prolonged period of elevated prices affect emerging markets?

Oil price changes mainly matter because they affect how much a country pays for what it imports, how much everyday fuel prices rise, and what central banks decide to do with interest rates. Oil‑importing and oil‑exporting countries feel these effects very differently, which can create opportunities for investors across emerging markets.

• For countries that import most of their oil: Higher oil prices make it more expensive for them to buy energy from abroad. This means they spend more on imports, their trade position worsens, and households feel squeezed because their incomes do not go as far. Prices across the economy rise — first at the fuel pump, and then for transport, goods, and services. If their currency weakens or people doubt the central bank’s ability to control inflation, the impact becomes even stronger.

• For countries that export oil: They tend to benefit when oil prices rise. They earn more from selling oil abroad (assuming they can keep exporting), which improves government finances and strengthens their balance with the rest of the world. Their currencies are more stable, and inflation doesn’t rise as much, even if domestic fuel prices also move with the market.

 
Among major emerging markets (EMs), this divide remains broadly regional. Latin America and the Gulf contain several material exporters, while EM Asia and parts of EMEA are predominantly importers. As shown in the charts, the hard currency emerging market debt universe is fairly mixed, while the major local currency bond issuers are generally net importers of oil.

EQUITY

Commercial airplane backlogs have rebounded

Every two years, the commercial aerospace industry gathers at the Paris Air Show, with the latest tech wizardry on display. We attended the June 2025 event, a good reminder of the secular growth and good management teams this sector possesses.

We believe global aerospace is one of the best-positioned industries for a decade-long cycle of growth, unless a major geopolitical crisis or a deep recession emerges. 
 
Commercial aerospace benefits from a backdrop any industry would covet: strong demand, tight supply, great pricing power and growth visibility over a long cycle. The situation is extra appealing because the aerospace business is essentially an oligopoly: Airbus and Boeing dominate global airplane manufacturing, while the likes of Safran, Rolls-Royce and GE Aerospace command significant market share in aircraft engines and components. 

Amid ongoing concerns about exposure to a concentrated US equity market in technology-oriented stocks, we find commercial aerospace is an attractive investment area that will provide broader global exposure in growth- and dividend-oriented portfolios.