We’ve seen decent returns across various asset classes over the last three months and again in August. Equity markets showed their ability to climb the “wall of worry” despite complex geopolitical tensions, trade policy developments and monetary policy uncertainty.
European equities continued their strong run returning 1.3% over August and remaining the top performing region in 2025. Europe benefitted from resilient economic activity as illustrated by the Purchasing Managers Index (PMI), which rose to 51.1% on increased manufacturing and loan growth in August. UK stocks also delivered a positive return (+0.5%) despite a mixed economic backdrop. The Bank of England (BoE) cut interest rates last month, but voting was much closer than expected, with the bank’s Governor Andrew Bailey concluding “it was a finely balanced decision.”
Looking more broadly, there was a strong return generated by Japan (+3.9%) while the US fell modestly (-0.9%). Asia and Emerging Markets equities posted gains of +1.8% and +0.1% respectively.
The macro-economic environment has evolved over the year as the initial shock of tariffs appears to be waning and markets take a less knee-jerk reaction to trade policy decisions made by President Trump. On the tariff front, there were a couple of developments over the month. In late July, the EU & US agreed to a 15% tariff on most EU exports which was higher than previous average tariff but lower than the threatened 30% and includes some exemptions. The US and China extended their trade truce until November 10th, leading to a rally in Chinese equities. Conversely, the US imposed a crushing 50% tariff on Indian goods to punish the country for purchasing Russian oil.
While markets now appear to be shrugging off tariff news, there are growing concerns that inflationary pressures are re-emerging at a time when the US economy is showing signs of slowing and the US government deficit levels continue to grow. To add to this, political noise intensified after Trump’s contested firing of Federal Reserve Governor Lisa Cook, fuelling debate on central bank independence. As a result, investors are demanding more compensation in higher interest rates for holding longer-dated US Treasuries, despite the Fed indicating a higher probability of future interest rate cuts. This has also led to growing demand for precious metals by both Central Banks and investors, resulting in the gold price hitting all-time highs.
Returns across asset classes have been broadly positive so far this year and it has been reassuring to see diversification has helped investors. However, looking forward there are a few things to note. Valuations in the US remain elevated, and Trump’s tariff related uncertainties could reappear even before their legality is addressed in the US Supreme Court in November. At the same time, potential macroeconomic volatility and geopolitical uncertainty are issues to be mindful of. Effective diversification is likely to continue to play an important role.