Financial markets closed 2025 with strong returns across most asset classes. The MSCI All Country World index gained 0.8% in December, bringing the full-year return to around 20% in US dollar terms (8.3% in euros). Global equities thus delivered their third consecutive year of strong gains. This performance was achieved despite persistent geopolitical tensions and uncertainty around trade and fiscal policy, underscoring the underlying resilience of the global economy. Periods of market anxiety were ultimately overcome by optimism surrounding the rapid adoption of artificial intelligence, the gradual easing of monetary policy by major central banks and continued economic resilience. Fixed income markets also performed well: global bonds delivered their strongest annual return since 2020, with US Treasuries gaining 6.3% and the Bloomberg Pan European Aggregate rising by 2.4%, while gold posted its largest annual gain since 1979, rising by 63% in US dollar terms, supported by lower interest rates and strong demand for diversification.

 

Economic growth proved more robust than anticipated. In the United States and the Eurozone, growth remained broadly in line with previous years, supported by healthy labour markets, stable consumption, and accommodative financial conditions. Inflation continued to moderate, albeit unevenly across regions. In the US, headline inflation eased to around 2.7% year-on-year toward the end of 2025, with core inflation declining to approximately 2.6%. In the Eurozone, headline inflation stood at around 2.2%, while core inflation remained somewhat higher at roughly 2.4%. Against this backdrop, central banks are likely to proceed cautiously in 2026, with limited and gradual policy adjustments.

 

Equity performance in 2025 was broad-based across regions. While US equities delivered solid returns, several other regions outperformed, including Europe, Japan, China and emerging markets. This outperformance was more pronounced in US dollar terms, as the US dollar weakened sharply over the year, losing around 13.4% against the euro and reflecting the erosion of the US interest-rate advantage. European equities benefited from an improving cyclical outlook, fiscal support and a recovery in the banking sector. Japanese equities were supported by continued corporate governance reforms and rising capital efficiency, while Chinese equities were driven by strong gains in the technology sector amid accelerating innovation and increasing monetisation of AI-related investments. At the same time, equity returns—particularly in the US—were driven by a relatively small group of large companies, resulting in narrow market breadth, with the average stock lagging the index despite improving earnings momentum toward year-end.

 

Against this backdrop, we maintain a constructive investment stance and continue to favour equities over bonds. We believe equity markets remain supported by earnings growth that is sufficiently strong to justify current levels, particularly when compared with the more modest return potential offered by fixed income. Our equity overweight is concentrated in the United States, where earnings dynamics remain clearly superior. High profitability, strong balance sheets and exposure to structural growth themes underpin this view. While valuations are elevated, we consider them less decisive at a tactical level and partly explained by the quality and growth profile of US companies. Investor sentiment remains relatively cautious, which we view as supportive from a contrarian perspective.

 

Outside the US, equity exposures are broadly aligned with strategic allocations. In Europe, growth is expected to improve modestly, supported by fiscal initiatives and gradually easing financial conditions, but weaker earnings momentum keeps us neutral. Emerging markets benefited in 2025 from a weaker US dollar and accelerating innovation, particularly in technology. Selective opportunities remain, especially in countries linked to the artificial-intelligence value chain or benefiting from shifts in global production, but we do not see sufficient grounds for a broad overweight at this stage.

 

Within fixed income, selectivity remains essential. Government bonds are held at neutral levels. In the US, persistent growth, elevated inflation and large fiscal deficits may place upward pressure on long-term yields, limiting return potential. In the eurozone, although inflation is expected to ease further, increased bond issuance and structural supply dynamics reduce the likelihood of a sustained decline in long-dated yields.

 

Credit markets offer limited compensation for risk. Credit spreads in both investment-grade and high-yield segments are historically tight, leaving little room for setbacks. We therefore maintain an underweight in corporate credit, particularly in US dollar markets where rising government bond yields could weigh on total returns. Eurozone credit is relatively more attractive than US credit, but not sufficiently compelling to warrant an overall overweight.

 

Overall, portfolios remain positioned with a clear emphasis on growth assets, complemented by prudent diversification. Geopolitical developments, fiscal challenges and policy uncertainty are likely to remain recurring themes in 2026 and may lead to periods of higher market volatility. In this environment, diversification across regions and asset classes, disciplined asset allocation, selective positioning and flexibility remain key to navigating markets and capturing long-term opportunities.

 

Please find attached our last Asset Allocation Update for January.