Quarterly Investment Review: Q4 2025
Hear from our Team
Antony Kelsey, Managing Director - Asset Management, interviews Senior Portfolio Manager, Sean Mills, about the last three months of market activity and what we can expect from the months ahead.
Q4 Market Commentary
The final quarter of 2025 capped a standout year, shaped both by actions of a single political figure, Donald Trump, which unsettled global markets, and by accelerating momentum in the AI revolution. The most powerful technology companies are in a fierce contest to dominate this new super cycle, pouring billions into data centres construction – vast not only in scale but in their staggering energy demands. As investment in AI surges, so do concerns that the relentless pace of growth could trigger a sharp correction in the stock market.
Over the course of the year, U.S. indices experienced heightened volatility and sharp declines driving them into negative territory on two occasions. In contrast, emerging markets, led by South Korea, significantly outpaced U.S. equities. Euro Stoxx 600 and UK main index also outperformed their U.S. counterparts. In US Dollar terms South Korean Kospi rallied 84%, Nikkei gained 29.9%, Hang Seng 32.5%. Euro Stoxx 600 gained 36.8% and UK’s main index 35.2%, both outperforming S&P 500, which returned 17.9%. South Korea’ s KOSPI was this year top performer, reflecting robust export – orientated tech and AI sector performance.
Bond markets in Q4 experienced mixed dynamics in government bond yields. Short – dated U.S. Treasuries rebounded, while longer – term maturities declined. UK Gilt yields declined by year – end, aided by ‘less bad’ Autumn Budget news and the Bank of England’s December rate cut. Corporate credit spreads narrowed to historic lows, reflecting strong demand and stable leverage. High yield bonds outperformed investment grade corporates, supported by income carry and falling rates. A dominant theme was the surge in large tech and AI borrowing, as firms raced to expand compute capacity and data centre infrastructure.
Precious metals rallied on ‘debasement’ fears and global demand for store of value, far outpacing broader commodities and equity indices. Gold’s rapid climb set new records repeatedly, but even this impressive momentum was outpaced by the strong year-end rallies in silver and platinum. By contrast, oil prices declined on concerns around supply gluts and weaker demand outlooks.
Macroeconomic forces influenced Q4 and full year market results. The Federal Reserve postponed its easing cycle until year - end, prompting the markets to reassess both the pace and size of future rate cuts. In Europe, the ECB concluded its rate cutting cycle in the first half of the year, while the Bank of England maintained a cautious stance on monetary easing, constrained by elevated service sector and wage inflation relative to other developed market peers.
Geopolitically, new, and old risks were causing temporary frictions. Israel and Palestine reached a ceasefire deal after two years of intense war. Iran and Venezuela sanctions added a further layer to geopolitics uncertainty. The Russia – Ukraine war has entered peace negotiations, with the United States positioning itself as a key mediator by hosting both Zelensky and Putin on US soil.
Looking ahead to 2026, most market strategists project continued, though more moderate, equity returns compared with the robust gains of the past three years. Growth is expected to be underpinned by ongoing AI integration across industries. We are closely monitoring this theme, assessing how significant capital expenditures will convert into monetisable gains. In addition, the monetary and fiscal stimuli introduced this year should provide further support, with more upside for Europe, emerging markets, and U.S. equities. At the same time, geopolitical developments will influence risk assets and safe - haven flows.
The views, thoughts and opinions expressed within this article are those of the author, and not those of Capital International Group Limited (Group) and/or any of its subsidiary companies and as such are neither given nor endorsed by the Group or any company within the Group. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Group to buy or sell any product or security or to make a bank deposit. Any reference to past performance is not necessarily a guide to the future. The value of investments may go down as well as up and may be adversely affected by currency fluctuations. The Group, its subsidiary companies, clients, and officers may have a position in, or engage in transactions in any of the investments mentioned. Opinions constitute views as at the date of issue thereof and are subject to change.
