Quarterly Market Update

The third quarter of 2025, along with October, proved broadly positive for global markets, as equities delivered solid gains while government bonds edged slightly into positive territory. Early geopolitical tensions gave way to renewed optimism following late-stage negotiations between the United States and China, which culminated in a one-year trade truce. This agreement paused tariff escalations and eased restrictions on rare earth minerals which are critical to the AI supply chain. This provided a significant boost to global sentiment. At the same time, moderating inflation data suggested that tariff-related passthrough has, so far, been more modest than many feared, further supporting risk appetite. 

Global equities rallied strongly, driven by continued enthusiasm around artificial intelligence, resilient corporate earnings and a pivotal interest rate cut by the U.S. Federal Reserve. The MSCI World Index advanced by 7.74% during the quarter. In the United States, equity markets surged to near all-time highs, with the S&P 500 and Nasdaq Composite Index setting new records. Growth sectors dominated, particularly technology and communication services, which benefited from the ongoing AI boom. Conversely, healthcare and energy lagged, with the latter weighed down by declining oil prices. While this renewed optimism is encouraging, it also suggests that much of the good news is already priced in, leaving little margin for error should conditions shift.

European markets also posted gains, supported by improved risk appetite and the European Central Bank’s accommodative stance. However, performance was more muted compared to the U.S., reflecting lower exposure to technology and political uncertainty in France. Financials were among the key drivers in the region. In Asia, Japanese equities stood out as top performers, with the Nikkei 225 Index rising nearly 11.0% in the quarter. A weaker yen, a favourable U.S.-Japan trade agreement reducing tariffs and ongoing corporate governance reforms all contributed to this strength. The appointment of Sanae Takaichi as Japan’s first female prime minister added to market optimism, as her commitment to expansionary fiscal and monetary policies was viewed positively by investors.

China’s technology sector experienced a sharp rally, with the Shanghai Composite Index climbing 12.73% for the third quarter and 18.0% year-to-date. Policy support for domestic chipmakers and accelerated AI investment drove this surge, while easing trade tensions and hopes for structural economic reforms provided additional tailwinds. In contrast, India continued to underperform relative to peers, as foreign investors sought higher yields elsewhere. The market remained largely supported by domestic investors, though long-term growth drivers remain intact.

On the fixed income front, performance was broadly flat, with the Bloomberg Aggregate Bond Index posting a slight gain for Q3. Major central banks either maintained policy rates or adopted an easing bias. Signs of a softening labour market and contained inflation reinforced expectations for further monetary support. The Federal Reserve delivered a 25-basis-point rate cut at its latest meeting, while the ECB held rates steady, signalling confidence in the current inflation trajectory.

Commodities posted modest gains overall, led by a significant rally in precious metals. Gold and silver reached record highs as investors sought safe-haven assets amid lingering uncertainties. However, the energy sector remained under pressure, with oil prices declining on concerns of oversupply, a trend expected to persist into 2026.

In currency markets, the U.S. dollar weakened for much of the year, driven by fiscal uncertainty and capital flows into alternative assets such as gold, the Swiss franc, and the Japanese yen. Emerging market bonds also attracted inflows. However, the dollar stabilized and staged a recovery in the third quarter, with the DXY Index rallying into October.