Markets & Macro
As 2025 draws to a close, global markets can point to a year of solid headline returns. Equities finished higher, credit held together, and recession fears never fully materialised. Yet beneath those outcomes, something more important shifted.
2025 was the year markets stopped taking policy at face value.
What began as cautious optimism around easing inflation and eventual monetary normalisation evolved into a far more complex environment. Political uncertainty, trade fragmentation and institutional credibility increasingly shaped market behaviour – often more than economic data itself. Confidence, rather than growth, became the binding constraint.
Trade, Policy and the Loss of the Old Playbook
The defining macro moment came in April, when US tariff announcements marked a decisive turn toward economic nationalism. Markets responded violently at first – global equities sold off, volatility spiked and supply-chain-exposed sectors led declines.
More revealing, however, was the response of currencies and commodities. The US dollar weakened meaningfully, contrary to textbook expectations. Capital flows reflected not optimism or pessimism about growth, but scepticism about policy coherence. Gold responded immediately, embarking on one of its strongest annual advances in decades.
Policy reversals followed quickly. Markets adapted just as fast. Investors learned to price probabilities rather than proclamations, and volatility became episodic rather than structural. Trust was replaced by tactical scepticism – a shift that would define the remainder of the year.
A Mid-Year Recovery Built on Fragile Foundations
Through the middle of the year, economic data stabilised and risk assets recovered. Yet much of the resilience was borrowed rather than earned. Trade was front-loaded ahead of tariffs, inventories flattered growth figures and easing energy prices helped inflation prints. Markets rallied, but the underlying cycle became more fragile, not stronger.
By the second half of the year, an unstable policy mix emerged. Trade barriers tightened even as monetary policy eased. The dollar weakened further, capital flowed selectively, and traditional macro relationships became less reliable guides.
Emerging Markets: Credibility Was the Catalyst
Against this backdrop, emerging markets delivered one of their strongest relative years in over a decade. In US dollar terms, the MSCI Emerging Markets Index returned around 30%, comfortably outperforming developed markets.
Crucially, this was not a uniform rally. Dispersion defined performance – by country, by policy credibility and by exposure to global political risk.
Three forces aligned in favour of emerging markets:
● A structurally weaker US dollar, driven by confidence erosion rather than global growth optimism
● Earlier and cleaner disinflation across many EM economies, preserving policy flexibility
● A preference for pragmatism over ideology in economic policy
Capital flowed toward markets offering stability, orthodox policy frameworks and credible institutions – not leverage or narrative.
Performance & Attribution
The Fund finished the year up +33%, broadly in line with the MSCI EM Index, which is exactly what you want to see in a year when emerging markets finally had a genuine tailwind: a weaker dollar, easing inflation in many EM economies, and capital rotating back toward markets with credible policy frameworks.
The year in one line
2025 was not about one trade – it was about owning the right countries and the right businesses when the EM rally took hold. The Fund’s return was driven overwhelmingly by stock selection, with currency contributing meaningfully as the US dollar weakened. In attribution terms, the Fund generated roughly +30% from holdings, plus +2.7% from FX, to reach the full-year outcome.
What worked in 2025
If you zoom out, the biggest drivers were very clear:
● South Korea was the standout. It was the single largest positive contributor, with a double-digit contribution to performance. This was a year where global capex, AI-related demand, and industrial momentum mattered, and Korea delivered. Holdings in SK Hynix and a cluster of Korean industrial names did the heavy lifting and were consistently additive across the year.
● Taiwan also meaningfully contributed. The portfolio benefited from the strength in the semiconductor ecosystem — with TSMC a key anchor — alongside contributors such as Hon Hai and selective supply-chain exposures. Taiwan was a strong example of “own the winners, but stay diversified across the chain.
● China delivered, and importantly, it did so without needing perfection. China contributed meaningfully on the year, helped by consumer and communication exposures — with Tencent and a range of China consumer names contributing. The key point here is that the portfolio’s China exposure was positioned for selective recovery rather than a full macro re-rating.
● Brazil was a positive contributor over the year, despite a tough end. Brazil’s full-year contribution was strong, driven by select consumer and domestic cyclicals earlier in the year. It’s also a good reminder of why position sizing and diversification matter — because Brazil can giveth and taketh away quickly.
The takeaway
The story of 2025 is that the Fund kept pace with a very strong EM rally, while still generating the bulk of return from bottom-up selection and capturing the supportive FX backdrop. And December — while less friendly — reinforced an important point: the portfolio’s core performance engine remains North Asia tech and industrial strength, while more volatile exposures (like Brazil) can be managed tactically without compromising the longer-term opportunity set.
