Markets: Quarterly review Q4-2025:

Q4-25 saw global markets deliver gains for the period with some markets reaching record highs or multi-year highs, despite some profit-taking as the quarter closed. We saw a good number of non-US equity markets outperforming US risk assets for the calendar year on the back of a weaker US dollar, with investor rotation and diversification helping to manage prevailing risks. Attractive valuation differentials between US and non-US assets added momentum for strong gains in Asia, Europe and Emerging Markets. Global technology sectors continued to dominate market sentiment despite increased ‘bubble’ concerns. Broadly, global market performance trends were supported by easing inflationary pressures; lower central bank interest rate trends into 2026; accelerated trade and supply chain diversifications; and with aggregated earnings growth expectations remaining more robust than expected into Q4-25.

Despite the longest Government shutdown on record and rising job losses US markets were marginally positive for Q4-25, rounding off a third-straight year of double-digit equity returns. The expected December ‘Santa-Claus’ rally failed to materialise on the back of elevated volatility, profit-taking, and broad risk rotation. Technology and communication sectors continued to dominate sentiment and media focus through Q4-25, despite underwhelming monetisation, and the increasingly evident circular and interconnected partnerships fuelling debt expansion across the Mag7. US investors reacted positively to the Decembers’ rate cut as expectations for more rate cuts through 2026 accelerated on the back of Trump messaging and his expected control over the Fed in May, assisted by indications from Trump that he may perhaps adopt a more flexible or less aggressive approach with his future tariff policies.

The Eurozone outperformed through Q4-25 on the back of downward trending global interest rates and inflation. Financial, utility and healthcare sectors benefitted from dependable cashflow; rising credit growth; and dividend investor appetite as investors rotated and diversified their risk orientations particularly as valuations and energy concerns accelerated through the quarter. Economic conditions across the Eurozone remain mixed and even fragile in the case of Germany as its manufacturing activity continues to contract in the face of accelerated energy and material costs. EU service activity and labour markets remained relatively positive and stable, helping to offset the softer trend for manufacturing activity. The ECB left rates unchanged but did raise its GDP forecast to 1.4% from 1.2% for 2025 on the back of stable labour and economic conditions across the zone, and so helping to boost favourable investor sentiment.

UK markets delivered a good Q4-25 to reach a multi-year high. Financials, defence, and commodity-related sectors outperformed on the back of relative asset under-valuation, strong international demand, attractive dividend yield environment, and a marginally weaker Sterling. The UK Prime Ministers’ popularity continues to decline markedly as the domestic economy struggles with accelerated living costs and declining consumer sentiment.

Japanese equity markets extended their rally through Q4-25 as the BOJ raised interest rates in December and signalled further increases for 2026. However, volatility toward end-year spiked on the back of high valuations and signs of domestic economic social distress. Defence and tech-related sectors advanced as broader investor sentiment became more favourable for manufacturing sectors as governance reforms continued and corporate earnings remained stable. The formation of a coalition Government by LDP and JIP under Sanae Takaichi as the first Japanese female Prime Minister was generally seen as a sign of political stability. Her budget announcement in December (FY 2026) aimed to further stimulate the Japanese economy through debt and tax increases to support defence, tech and social sectors. 

Emerging Markets outperformed through Q4-25 as the Fed reduced rates twice in the period, assisting EM markets and economies to better stabilise their economies, with notable gains from tech and commodity related sectors. A new trade agreement between South Korea and the US involving tariff reductions and major direct investment into the US helped Korea outperform through the quarter, particularly in tech-related sectors. South Africa outperformed on the back of precious metals, a November rate cut, and a favourably received mid-term budget. Chile outperformed on the back of commodity gains. Taiwan and Mexico performed well through the period on the back of the weaker USD and tech-related sectors. Brazil and India delivered positive performances despite geo-political, economic and fiscal challenges. China underperformed for the period on the back of profit-taking, domestic economic challenges into 2026, and ongoing geo-political risks.

Asia in general delivered a positive quarter as the regional environment remained mixed fiscally and economically. Malaysia, Indonesia and the Philippines delivered a good quarter as domestic economic conditions improved amid expanding tech-related and regional trade activities. Singapore delivered positive but muted returns amid softer external demand and an uncertain trade-related environment.

Global bond markets remained mixed and volatile through the quarter. The longer-dated yield curve for US Treasuries steepened through the quarter as investors increased their focus on shorter-dated debt instruments after the Fed cut rates by 0.25% in both October and December, as investors sought improved agility for liquidity and risk in the face of escalating fiscal, labour, and economic challenges facing the US. Conversely, UK Gilts outperformed on the back of the November UK budget detailing reduced Gilt issuance and better fiscal data for the coming year, and with the BOE dropping rates by 0.25% in December. In contrast to the UK and US trends, JGB’s saw a significant sell-off – raising yields to multi-year highs. The BoJ raised rates to 0.75% and the Japanese PM’s’ budget announced a massive stimulus package of 21.3Tn Yen, raising immediate investor concerns once added to Japans’ already massive debt burden of 230% of GDP. Italian bonds performed well on the back of stable fiscal data whereas German Bunds underperformed as economic data continued to deteriorate. US corporate bonds had a positive quarter as markets saw lessening concerns over the financial sectors’ exposure to credit defaults as data improved. EUR and GBP corporate bonds outperformed.

Global commodity sectors generally delivered a positive Q4-25 led by precious metals on the back of geopolitical stresses, global inflation and economic risks, volatile risk appetite, and supply constraints. Industrial metals also performed strongly as copper reached record highs as demand far outstripped supply. Lithium also performed well on the back of EV and battery storage demand. By contrast, energy underperformed on the back of global oversupply as global demand momentum slowed through Q4-25.

Digital assets saw a very volatile Q4-25 with record inflows for October (BTC $126k) amid expanded exchange-traded product offerings. In November we saw substantial net out-flows as investors became defensive and this sentiment continued through December. Indeed, Bitcoin fell to $87k by end-year marking one of the biggest quarterly declines since 2022. This quartile trajectory was mirrored by many other digital assets.

Andy Blandford