GLOBAL PERSPECTIVES
The third quarter of 2025 saw a broad-based rally across most asset classes, driven by easing trade tensions, AI optimism, and rising expectations for near-term rate cuts from the U.S. Federal Reserve. This year has tested investor resolve with a litany of concerns: tariffs and trade wars, inflation, geopolitical tensions, social unrest, soft housing data, labour market cracks, and now, a U.S. government shutdown. Yet, despite bouts of volatility and mid-year drawdowns of -20% (USD) for the S&P 500, -25% (USD) for the Nasdaq 100, and -30% (USD) for the Russell 2000, equity markets have staged an extraordinary comeback, hitting new all-time highs by quarter-end.
Global equities advanced broadly in the third quarter, supported by a resilient U.S. economy, expectations of continued monetary easing, and improving sentiment across Asia and select emerging markets. The MSCI World Index gained 7.4% (USD), while the MSCI Emerging Markets Index surged 11.0% (USD), led by technology-heavy markets in China and Taiwan.
Global fixed income returns were modest as investors balanced optimism around rate cuts against fiscal and geopolitical risks. The Bloomberg Global Aggregate Bond Index rose 0.6% (USD), while commodities posted strong gains, with the Bloomberg Commodity Index up 3.7% (USD). Gold’s surge to a record high underscored continued demand for safe havens amid lingering uncertainty.
UNITED STATES
U.S. equities delivered strong gains in 3Q25, with the S&P 500 Index returning 8.1% (USD). The Nasdaq Composite led the charge, up 11.2% (USD), driven by growth in technology and AI-related sectors. The small-cap Russell 2000 rallied 12.4% (USD), reaching levels not seen since 2021. September marked the S&P 500’s second-best September (+3.6%) in 27 years, even as the government entered shutdown mode at quarter-end. Despite an initially jittery response to the July non-farm payroll report and a Treasury sell-off in September, equities were buoyed by solid Q2 earnings and resilient economic indicators.
Corporate earnings remained robust. Over 80% of companies beat EPS estimates, a continuation of the strong post-pandemic earnings streak. S&P 500 earnings grew 12.7% YoY in Q2, well ahead of expectations, and FactSet now forecasts 7.9% YoY earnings growth for Q3.
All eleven S&P 500 sectors ended higher year-to-date, with cyclical sectors outperforming defensives in Q3. Information Technology (+8.9% USD) and Communication Services (+7.8% USD) led the gains, driven by strong AI momentum and digital advertising growth. Among traditional cyclicals, Industrials (+5.1% USD), Financials (+3.7% USD), and Materials (+2.4% USD) advanced on solid earnings and firm commodity prices. Defensive sectors lagged, with Health Care (+2.0% USD), Consumer Staples (+1.5% USD), and Utilities (+1.2% USD) posting more modest gains as investors rotated toward growth-sensitive areas amid expectations of lower interest rates.
The Federal Reserve cut rates by 25 basis points at its September meeting, lowering the federal funds range to 4.0–4.25%. The updated Summary of Economic Projections signalled a more dovish stance, with a median forecast of two additional cuts before year-end.
The U.S. Dollar Index (DXY) steadied in the third quarter, rising 0.9% after a historically weak first half that saw a 10.7% decline. The softer dollar provided strong support for commodities, particularly precious metals. Gold surged 17% (USD) to close the quarter at US$3,859 per ounce, marking its best quarterly performance since 1979. Silver outperformed gold with a 30% (USD) quarter-on-quarter gain, driven by robust industrial demand and continued inflows into exchange-traded funds (ETFs). Reflecting this strength, gold mining equities also rallied sharply; the NYSE Arca Gold Miners Index climbed 46% (USD) for the quarter.
EUROPE & UNITED KINGDOM
European equities posted modest gains, with the MSCI Europe ex-UK Index up 2.8% (USD). The UK’s FTSE All-Share gained 6.9% (GBP), supported by global earnings exposure and defensive sectors, while Germany’s DAX declined by 1.2% (EUR) due to weaker manufacturing output and profit warnings from automakers.
The Eurozone economy remained mixed. Germany’s Q2 GDP contracted 0.3%, stoking recession concerns, while France’s PMI rose to a 16-month high after a political shake-up in government. The ECB kept its policy rate unchanged at 2% in both July and September following seven consecutive cuts, reflecting controlled inflation and cautious optimism.
In the UK, the FTSE 100 surpassed 9,000 for the first time since its 1984 launch, driven by healthcare and defence stocks such as AstraZeneca, GSK, and BAE Systems. However, mid-cap stocks underperformed, reflecting subdued domestic growth and weaker retail sentiment. UK Gilts fell 0.7% GBP amid sticky inflation and rising fiscal pressure, with 30-year yields reaching 1998 highs.
ASIA
Asian equities were the standout performers. The MSCI Asia ex-Japan Index returned 11.1% (USD), led by Chinese tech stocks. The Hang Seng Tech Index gained 22.1% (USD) over the quarter and is up 46.0% (USD) YTD, supported by domestic chipmaker policies and accelerated AI investment. The MSCI Taiwan Index advanced 14.7% (USD), reflecting the tech-heavy weighting of the market.
Japanese equities also performed well, with the TOPIX Index up 11.0% (JPY). A weaker yen and a US-Japan trade deal reducing tariffs on exports to the US helped drive gains, alongside strong domestic macro data and ongoing corporate governance reforms. Inflation in Japan remains above the BoJ’s 2% target, yet the central bank maintained its 0.5% policy rate.
China’s domestic data painted a more nuanced picture. Industrial output growth slowed to 5.2% YoY in August from 5.7%, while retail sales rose 3.4% YoY, below expectations. Despite this, investor sentiment remained buoyant due to AI adoption and policy support measures, reflecting a market that is increasingly driven by sectoral leadership rather than broad macroeconomic fundamentals.
EMERGING MARKETS
Emerging markets broadly outperformed developed markets, gaining 11.0% (USD) over the quarter. Performance was led by Asia, where policy support, a weaker dollar, and improving trade dynamics lifted both equities and debt. EM bonds returned 4.4% (USD), supported by tighter spreads and declining U.S. yields.
Latin America showed more muted results as weaker commodity exports offset gains in local currencies. Meanwhile, frontier markets benefited from easing inflation and improved balance-of-payments dynamics.
SOUTH AFRICA
South African equities extended their strong run in Q3, with the FTSE JSE All Share Index up 13% (ZAR) and reaching a new all-time high of 107,940. Gains were led by gold miners and resource stocks, supported by the global surge in precious metals. The Resi-10 Index advanced 49.5% (ZAR), while Industrials (+3.7%) and Financials (-0.4%) delivered mixed returns.
South Africa’s economy surprised to the upside: Q2 GDP grew 0.8% QoQ (vs 0.5% expected), marking its strongest expansion in two years. Inflation remained contained, with CPI at 3.3% in August. The SARB held the repo rate at 7%, following a July cut, and forecast CPI to average 3.4% in 2025.
Trade talks with Washington continued over the proposed 30% tariff hike. The U.S. administration signalled tentative support for extending the African Growth and Opportunity Act (AGOA) by one year, offering some relief for exporters. Nonetheless, external risks remain elevated due to global tariff uncertainty.
HOUSE VIEW & LOOKING FORWARD
Despite ongoing market volatility, including the current US government shutdown, historical data suggests such events have minimal lasting impact on markets. Past shutdowns over the last 30 years have seen equities and bonds largely weather disruptions, with stocks often rising during these periods. This year has highlighted the importance of staying invested through both challenging and favorable market conditions. While some segments of the market experienced sharp drawdowns earlier in the year, broad participation in the rebound demonstrates that long-term investing through volatility remains essential.
Another key takeaway from 2025 has been the benefit of diversification. Different asset classes have shone at different times: US and global equities, emerging markets, commodities, and bonds all contributed to portfolio performance at various points in the year. This highlights the value of spreading exposure across regions, sectors, and asset types to capture upside while mitigating risk.
As always, we continue to actively manage our clients’ investment portfolios to ensure they are well-positioned to take advantage of opportunities across the markets. While we anticipate continued volatility, historically, October has been a favorable month for equities. With strong corporate earnings, resilient economic indicators, we maintain a positive outlook for markets in the near term. We remain committed to balancing risk and opportunity, focusing on growth while safeguarding against downside surprises.
