Year-End 2025 Market Twist

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Introduction

As 2025 enters its final stretch, the global economic landscape is increasingly uneven and that divergence is creating both risks and opportunities for investors.

In the United States, growth is losing momentum as consumers rein in spending and policy uncertainty weighs on confidence. Europe, by contrast, is emerging as a relative bright spot, benefiting from easing inflation and the prospect of increased government spending that could support growth into 2026. Meanwhile, China continues to face challenges in reviving domestic demand, keeping its recovery uneven and policy-dependent.

Against this backdrop, inflation is moderating and the US Federal Reserve has begun cutting interest rates. A softer rate environment is likely to put downward pressure on the US dollar, opening the door to opportunities across other regions and asset classes.

Portfolio Positioning: What Investors Should Consider

1. Reduce US concentration, diversify globally
With US growth slowing and the Fed likely to cut rates further, the risk-reward in US assets is becoming less compelling. A weakening USD strengthens the case for reallocating toward regions with improving fundamentals and currency tailwinds.

2. Tilt toward Europe and Japan
Europe stands out as a relative winner, supported by easing inflation, lower rates, and upcoming fiscal stimulus. Japan also benefits from improving corporate governance, reflationary momentum, and potential yen stability as global yields converge.

3. Stay selective in China, constructive on India
China remains challenged by weak domestic demand and export dependence, warranting a selective and policy-aware approach rather than broad exposure. India, by contrast, offers a more durable structural growth story driven by domestic consumption and investment

4. Increase exposure to global equities outside the US
As the USD weakens and rate differentials narrow, global equities particularly in developed ex-US and select emerging markets may offer better relative returns and diversification benefits.

5. Rebuild income through bonds
With rate cuts on the horizon, bonds paying regular coupons become increasingly attractive. High-quality government bonds and investment-grade credit can provide income, downside protection, and portfolio stability.

6. Maintain an allocation to gold
Gold remains a valuable hedge against USD weakness, geopolitical uncertainty, and shifting monetary policy. In a lower-rate environment, its role as a portfolio stabiliser becomes even more compelling.

Key Takeaway for investors

2026 is less about chasing the next macro shock and more about positioning for a world of lower rates, greater regional divergence, and renewed emphasis on diversification and income. Investors who stay selective, globally diversified, and disciplined are likely to be best placed to navigate the next phase of the cycle.

Happy New Year and Happy Investing!!