Global Perspectives
The second quarter of 2025 was a tale of volatility followed by resilience. Global markets endured geopolitical tensions, tariff shocks, and questions around fiscal sustainability, only to recover sharply as worst-case scenarios failed to materialise. The US “Liberation Day” tariff package triggered a sharp selloff early in the quarter, but swift political manoeuvring helped ease tensions. Coupled with a strong earnings season and a weakening US dollar, markets regained momentum. Developed Market (DM) equities rose +11.6% (USD), with global growth stocks leading at +17.7% (USD). Emerging Markets (EM), aided by currency strength and easing trade tensions, delivered a robust +12.2% (USD). Despite intermittent shocks including the Iran-Israel conflict and concerns over US fiscal stability, markets found support from dovish central banks, resilient corporate earnings, and a significant shift in investor sentiment.
The graph below illustrates the key events that contributed to this quarter’s major drawdown, as well as the subsequent recovery:
Source: (Yahoo Finance, 2025).
United States
Volatility in the US stemmed primarily from its own policy choices. The introduction of aggressive reciprocal tariffs in April spooked markets, leading the S&P 500 to fall 12% (USD) in a single week. However, after the Trump administration paused tariffs and initiated trade negotiations with China, risk assets rebounded. The S&P 500 closed Q2 up +10.9% (USD), from the lows of the quarter and ending at a record high.
The ‘Magnificent 7’ mega-cap tech stocks rallied 18.6% (USD), helping the Nasdaq 100 to gain 8% (USD) for the quarter. US Treasury yields were rangebound, with the 10-year yield flat but the curve steepened due to concerns over the fiscal implications of the “One Big Beautiful Bill Act.” Long-dated yields rose, with the 30-year yield up 20bps. Despite resilient inflation and no rate cuts yet, the Federal Reserve held its policy rate steady at 4.25%–4.50%. Internal projections point to two possible cuts in the second half of 2025, but about 40% of FOMC members now favour holding rates constant through year-end. The US Dollar Index (DXY) weakened significantly, down -7.1% in Q2 and -10.7% YTD, its worst start to a year since 1973. This weakness provided a tailwind for dollar-based investors in foreign assets.
United Kingdom
UK markets underperformed relative to other regions, weighed down by heavy exposure to energy and healthcare sectors, the only negative equity sectors globally during Q2. The FTSE All-Share Index still managed to return 4.4% (GBP) for the quarter.
Inflation trends in the UK remained mixed, and the Bank of England held rates steady as it weighed conflicting signals from wage growth and consumer prices. Investors continue to focus on UK fiscal policy and its implications for business investment, particularly in the post-Brexit regulatory landscape.
Europe
European equities also lagged in local currency terms but benefited meaningfully from USD weakness. The Euro Stoxx 50 returned 3.6% (EUR) but 12.7% (USD) for US-based investors.
The European Central Bank (ECB) implemented two rate cuts in April and June, bringing the deposit rate to 2.0%. ECB President Lagarde signalled that the cutting cycle may be nearing its end, but inflation forecasts continue to suggest more easing is possible. European bond yields declined 17bps, and Italian bonds were standouts, returning 2.9% (EUR) over the quarter.
European government bonds outperformed US Treasuries and Japanese JGBs, while investment-grade credit delivered 4.4% (EUR). Global inflation-linked bonds rose 4.7% (USD), supported by USD weakness and resilient international cash flows.
Asia
Asian markets posted broad gains in June, supported by stimulus measures and improved sentiment. In China, monetary and fiscal support lifted equities, with the Hang Seng up 3.4% (HKD) and 20.0% YTD, while the Shanghai Composite rose 2.9% (CNY) and 2.8% YTD. On the economic front, China’s official manufacturing PMI edged up to 49.7 in June from 49.5 in May, remaining just below the threshold for expansion. The non-manufacturing PMI, which captures services and construction activity, rose modestly to 50.5 from 50.3, signalling modest growth.
Japan’s Nikkei advanced 6.6% (JPY) in June and +3.7% in 2Q25, despite U.S. tariff concerns. Inflation rose to 3.7% YoY in May, adding pressure on the Bank of Japan to tighten policy.
Emerging Markets
Emerging markets posted strong returns of 6.1% (USD) in June, finishing the quarter at +12.2% (USD) and 15.5% (YTD). EM performance was helped by falling global yields, USD weakness, and improving trade dynamics. Commodity exporters, including countries in Latin America and parts of Africa, also benefitted from stronger metal prices. Despite geopolitical headwinds, risk appetite returned swiftly after the US tempered its trade stance, encouraging flows back into EM equity and debt.
South Africa
The South African equity market concluded the first half of 2025 on a strong note, with the FTSE/JSE Capped SWIX Index advancing by 2.2% month-on-month (MoM), bringing year-to-date (YTD) gains to an impressive 16%. While gold stocks (+76% YTD) were the primary contributors to market performance in the early part of the year, recent momentum has shifted to platinum miners, which gained 19% in June and are now up 83% YTD. Collectively, the precious metals sector—comprising both gold and platinum counters—has accounted for more than half of the JSE’s total returns so far this year.
On the macroeconomic front, South Africa’s latest inflation data showed core inflation rising by just 3.0% year-on-year, comfortably within the South African Reserve Bank’s target range and slightly below consensus forecasts. Meanwhile, the rand appreciated by 1.6% against the US dollar during June, benefiting from broad-based dollar weakness and improving investor sentiment toward emerging markets.
Looking ahead & House view
Whilst we believe there is a genuine broadening of equity markets and acknowledge the increasingly bullish sentiment towards Europe and emerging markets, this does not detract from our long-term conviction in U.S equities. We maintain that U.S. equities—particularly those exposed to the broader technology space and the rise of AI—will continue to deliver superior returns over time, driven by innovation, strong earnings growth, and structural leadership in transformative sectors.
In equities, the broadening of market leadership beyond mega-cap tech evident in the outperformance of the S&P 493 over the ‘Magnificent 7’ in the first half of 2025—reinforces our view that opportunities now exist across a wider range of geographies and sectors. We are particularly constructive on select areas in Europe, emerging markets and small-cap equities, as well as companies with pricing power and structural advantages in an era of rising tariffs and deglobalization pressures.
With volatility still subdued and few signs of excessive risk-taking, we believe markets have room to move higher, barring major policy shocks or geopolitical surprises. Should fundamentals remain intact, especially in the tech and AI-driven segments, we see scope for global equities to reach new highs into year-end.
Looking ahead, we anticipate US equities will continue to attract foreign capital due to superior liquidity, robust earnings growth, and innovation leadership. International markets, meanwhile, are becoming more attractive on a relative basis, with domestic-oriented companies in Europe, Japan, and the UK likely to benefit from a weaker US dollar and shifting trade dynamics.
As always, we will continue to monitor the evolving macro landscape and market drivers to ensure our clients’ portfolios remain optimally positioned for both resilience and growth. We remain focused on navigating an increasingly complex macro and market environment with a disciplined, active, and globally diversified approach. We believe the current environment calls for portfolios to remain invested, agile, and well-balanced across regions, sectors, and styles.
