Monthly Recap: Market & Macro Overview – Q3 2025
In Q3 2025, the US implemented a sweeping tariff reset and the first rate cut of the cycle by the Federal Reserve. A universal 10% baseline tariff on imports, with higher surcharges on key US partners, injected a new layer of protectionism into the global economy. China was granted a temporary truce at 10% until November.
The Fed lowered rates by 25bps to 4.00–4.25%, responding to softer labour market data and mounting political pressure. This unusual combination of fiscal protectionism and monetary easing has left global capital flows in flux and markets susceptible to abrupt swings in equities, FX, and bonds.
For emerging markets, divergence was the key theme. China staged a double-digit equity rally, fuelled by targeted fiscal support, gentle monetary easing, and optimism around technology exports. Industrial resilience surprised on the upside even as household demand lagged. India, in contrast, underperformed as foreign outflows, a weaker rupee, and elevated valuations met softer earnings in rate-sensitive sectors. Indonesia was the standout, with equities reaching record highs thanks to strong commodity tailwinds (nickel, palm oil, copper) and renewed confidence in domestic policy direction. Elsewhere, Brazil traded sideways as tight monetary conditions offset commodity support, while Mexico bore the brunt of tariff anxieties.
Overall, global equity markets delivered strong Q3 returns, but beneath the surface, investors were highly selective. Emerging markets rewarded credible reforms, policy anchors, and commodity resilience, while punishing excess valuations and external vulnerabilities. The quarter underscored that EMs are not a monolith: dispersion, rather than convergence, is now the defining feature.
Performance & Attribution – Q3 2025
The Milltrust Global Emerging Markets Fund saw a 6.7% gain in Q3, with North Asia showing strength and India showing weakness. The period was characterized by dispersion across markets, with China being the biggest driver of returns, adding over three percentage points. Technology and consumer names led the charge, with Tencent and Newborn Town experiencing surges in digital platforms. 361 Degrees in sports apparel saw a 30% return, becoming one of the largest stock contributors. Inspur, a server and AI hardware player, also contributed strongly. Chicmax and Shoucheng, a cosmetics group, and real estate services company Shoucheng also saw strong gains. Despite some challenges, the breadth of winners outweighed the losers.
China trailed the index, with September seeing a surge in index heavyweights like Alibaba and Baidu. Alibaba’s surge of over 50% in September was driven by its AI model announcement and Nvidia partnership. However, the company’s earnings are still declining, with a 20% drop last quarter and an expected steeper fall ahead. Baidu’s 50% increase in September doesn’t meet investment criteria due to its valuation and inconsistent earnings profile. The market chased the AI story, but the company’s risk/reward ratio remains unattractive.
More broadly, the performance in Chinese stocks were driven by investors chasing the AI theme, with capital funnelling into the biggest brand names. That left some of our smaller, high-conviction technology and cloud holdings with more muted performance. In short, the index’s winners were bigger and faster than ours in September. Our discipline on valuation and earnings visibility meant we missed part of the rally, but we remain confident that this approach will prove more durable than momentum-driven spikes.
Taiwan followed close behind, contributing over 2.6%. The market rode a powerful wave in technology hardware, with Taiwan Semiconductor (TSMC) alone accounting for nearly 1.4% of fund performance. The rally was broad-based: Hon Hai (Foxconn) rebounded sharply, Zhen Ding Technology surged nearly 60%, and several smaller component makers delivered double-digit gains. The strength here reflects global demand for AI-related infrastructure, where Taiwan remains at the heart of the supply chain.
South Korea also made a strong contribution, adding around 0.7%. Technology was again the common thread, with SK Hynix and several semiconductor suppliers benefiting from the same AI-driven momentum. Industrial names such as Hyundai Electric and Hyundai Marine Engine also posted robust gains, underscoring the resilience of Korea’s export sector. Offsetting this, entertainment and retail names like JYP Entertainment and BGF Retail weighed on performance, as did exposure to Doosan Enerbility, which struggled with tariff-related headwinds.
Not all regions fared as well. India was the biggest drag, costing the fund around 70 basis points. After years of strong performance, valuations finally caught up with Indian equities, and foreign outflows pressured the market. Weakness was concentrated in financials – HDFC Bank, Kotak, and Federal Bank all declined – while health care names like Narayana Hrudayalaya fell sharply. There were bright spots in consumer discretionary, with Eicher Motors posting double-digit gains, but not enough to offset the broader downdraft.
In short, the quarter reflected exactly what makes emerging markets unique: dispersion, volatility, and powerful stock-specific drivers. Technology strength in North Asia, coupled with selective gains in ASEAN, provided the fuel for strong performance, while India reminded investors that high valuations can quickly turn into vulnerability. The portfolio’s emphasis on innovation, infrastructure, and reform stories positioned us well for this dynamic landscape.
