Investment Commentary - September 2025

Markets delivered strong returns through the third quarter of 2025, with most major asset classes finishing higher as trade tensions eased, enthusiasm around artificial intelligence remained elevated, and expectations for near-term interest-rate cuts from the US Federal Reserve increased. Although volatility persisted during the period, a resilient global economy and easing inflationary concerns helped investors look through political noise once again.

September rounded out the quarter on a strong note for equities, with most major indices posting moderate monthly gains. The S&P 500 rose +3.6%, while European markets added +1.5% and UK equities +1.8%. Asian markets were again the standout, with the Hang Seng up +7.6%, Nikkei +5.8%, and MSCI Emerging Markets Index +7.2%.

For Q3, global equities rose by +7.4% as investors took comfort from a resilient growth backdrop and the Fed’s decision to deliver its first rate cut of the year in September. The cut, which lowered the fed funds target range to 4.00-4.25%, came alongside guidance for further easing into 2026. Against this backdrop, the S&P 500 returned +8.1% over the period. European markets were more mixed: the MSCI Europe ex-UK Index rose just +2.8%, held back by weakness in Germany (-1.2%) and political uncertainty in France. UK equities advanced +6.9%, aided by their global exposure and a weaker Sterling. Asian equities were the standout performers however. The MSCI Asia ex-Japan Index gained +11.1%, led by China and Taiwan. Chinese technology shares surged, with the Hang Seng Tech Index up +22.1% in Q3. This reflected strong policy support for the semiconductor sector and optimism around domestic AI development. Broader Chinese equities benefited from the extension of the US-China trade truce and growing faith in measures aimed at boosting productivity and household consumption. Japan also saw a strong quarter, with the TOPIX up +11.0%. A weaker Yen enhanced competitiveness for exporters, while corporate reforms and a new US-Japan trade agreement—which reduced US tariffs on Japanese goods from 25% to 15%-underpinned sentiment. Growth stocks (+8.6%) again outpaced value (+6.0%) during the quarter as AI-linked sectors continued to capture investor imagination.

Bond market returns were relatively steady in September. US Treasuries gained +0.9%, European sovereigns +0.5%, and Gilts +0.7%, as the Fed’s rate cut and softer macro data helped ease yields. Returns were also modestly positive for Q3. The Bloomberg Global Aggregate Bond Index gained +0.6%, supported by the rally in US Treasuries (+1.5%) following the Fed’s pivot. Short-dated yields declined while longer-dated bonds remained under pressure in some markets. European sovereign bonds fell -0.2% as fiscal risks resurfaced, particularly in France, where the 30-year yield rose to post-2009 highs before stabilising. UK Gilts slipped -0.7% amid renewed scrutiny of government borrowing and persistent inflation, which kept the long end of the curve under pressure. Japanese government bonds underperformed (-1.5%), with yields rising after the Bank of Japan hinted at a gradual reduction in its asset purchase programmes.

Credit markets posted healthy gains in Q3 as spreads tightened in response to the improved risk appetite. Global investment-grade bonds returned +1.9%, while high-yield markets outperformed, led by US high yield (+2.4%) versus Europe (+1.9%). Emerging market debt was a notable winner, returning +4.4% as the weaker dollar and resilient commodity prices attracted inflows.

Within commodities, gold rose +11.9% in September alone, while oil drifted -1.6% as inventories built modestly. For Q3 as a whole, commodities produced positive returns in aggregate, with the Bloomberg Commodity Index up +3.7%. Energy prices were little changed as expectations of a supply surplus offset geopolitical tension, leaving Brent crude down -0.8%. Gold was the standout performer, rallying +16.8% in Q3 to a record $3,859/oz — its best quarter since 1979 — while silver surged +29.2%.

The US dollar stabilised after its sharp first-half decline, rising +0.9% on the quarter. The euro held broadly steady, while the yen weakened further as interest rate differentials widened. Sterling lost some ground against the dollar but remained firmer versus the euro.