Global investment market review: Q2 2025 performance & highlights

In the second quarter of 2025, the MSCI All Country World Index, a representative measure of global equities, rose 5.1% in sterling terms and gained 9.4% in local currency terms. The US and emerging markets were among the strongest regions in local currency terms. Growth stocks led the way, outpacing value. In April, the US announced a broad set of global trade tariffs that led to a selloff in equity markets.

However, stocks rebounded as the US then paused tariffs for many countries. Reports of progress in some trade negotiations further boosted sentiment as the quarter progressed. In mid-June, conflict in the Middle East brought short-term volatility, before a ceasefire calmed markets. In fixed income, the ICE BofA Global Government Index dropped 1.7% in sterling terms but added 0.9% in local currency terms. Sterling gained ground against the US dollar.

Crude oil price futures slumped at the start of the period on supply increases and weaker demand expectations as a result of trade tensions. The outbreak of conflict between Israel and Iran led to a price spike in mid-June; however, oil prices then fell back as tensions reduced somewhat. European natural gas futures declined overall.

The FTSE 100 Index, a commonly used representative benchmark of the largest UK-listed stocks, gained 3.2%. The FTSE All Share Index rose 4.4%, helped by strength in mid- and small-cap stocks. In May, the Bank of England’s (BoE) Monetary Policy Committee (MPC) cut the Bank Rate by 25 basis points (bps) to 4.25%. However, two members of the MPC voted to keep rates flat, while two voted for a 50-bps reduction. The UK’s annual inflation rate stepped up over the period, from a reading of 2.6% in March, to post 3.5% in April and 3.4% in May, on the back of the recent rise in the energy price cap. After holding steady at 4.4% for four successive months, unemployment edged up to 4.5% and 4.6% in March and April, respectively. The preliminary UK manufacturing Purchasing Managers’ Index (PMI) figure for June remained in contraction but saw four months of sequential improvement. After dipping into contraction in April, the flash UK services sector PMI expanded in May and reached 51.3 in June, which was in line with expectations. (Note that a PMI figure under 50 indicates contraction.)

Headway was made in emerging markets as the US dollar weakened and tariff worries eased somewhat as the quarter progressed.

In US equities, despite the disruption of the tariff announcements, the S&P 500 Index reached fresh record highs towards quarter-end, and gained 4.4% overall in sterling terms, and 10.8% in US-dollar terms. The growth-focused Nasdaq Composite Index rose 11.1% in sterling and 18.0% in local terms. The Federal Reserve (Fed) kept its interest rate on hold at 4.25%-4.50% following both of its meetings during the quarter as it wanted to assess the effect of recent policies. US annual inflation was at 2.4% in May, compared with 2.3% during the previous month. Annualised gross domestic product (GDP) for the first quarter of 2025 declined 0.5%, compared with 2.4% growth in the fourth quarter of 2024, amid slower exports and consumer spending, and falling government outlays. The closely monitored non-farm payrolls rose by a better-than-expected 139K in May, down slightly from April’s 147K additions. The healthcare and food service segments continued to add jobs. The preliminary US manufacturing PMI for June came in at a better-than-expected reading of 52, as factory production increased. The flash services PMI also remained in growth territory.

The FTSE Developed Europe ex UK Index gained 5.6% in sterling terms, and 3.0% in local terms, as the euro rose against sterling. At the country level, the Netherlands and Germany were among the main markets to advance in local currency terms, while Switzerland declined. The DAX Index of major German stocks reached new record highs during the quarter. The European Central Bank (ECB) reduced its key interest rates by another 25 bps in April and June, as inflation waned and it looked to support growth. The ECB’s inflation forecasts were reduced to 2% for 2025, from the previous estimate of 2.3%. Meanwhile, eurozone inflation was 1.9% in May, down from 2.2% in April. The eurozone’s first-quarter GDP growth was finalised at 0.6% quarter-on-quarter (q/q), compared with growth of 0.3% q/q in the final three months of 2024, as it benefited in part from robust expansion in Spain. Preliminary figures for June’s eurozone manufacturing PMI remained in contraction. However, having weakened mid-quarter, the flash services PMI figure improved to 50 in June.

The FTSE Japan Index moved 4.9% higher in sterling terms and up 7.6% in yen terms. The yen strengthened against the US dollar but lost some ground against sterling. The Bank of Japan (BoJ) kept rates on hold at 0.5% over the quarter as it remained cautious amid tariff uncertainty. Annual inflation waned slightly, ending the quarter at 3.5%. Japanese manufacturing stepped out of contraction in June according to preliminary PMI figures. Meanwhile, the early reading of the services PMI for June stayed in expansionary territory for the third successive month.

The FTSE Emerging Index rose 3.3% in sterling terms and 9.7% in local terms. Korea, Mexico, Brazil and India were among the individual markets to advance, while Saudi Arabia weakened. Headway was made in emerging markets as the US dollar weakened and tariff worries eased somewhat as the quarter progressed. In contrast, Saudi Arabia’s weakness mirrored declines in the price of crude oil. The Bank of Korea reduced its base rate from 2.75% to 2.5% against a backdrop of faltering GDP growth, which contracted 0.2% q/q in the first quarter. Annual GDP in China grew 5.4% year-on-year (y/y) for the in the first quarter of 2025, matching the pace of the previous period. After posting 7.7% y/y growth in March, industrial production softened to 6.1% and 5.8% in April and May, respectively. Export growth jumped to 12.4% y/y in March, on the back of order frontloading ahead of US trade announcements, before slipping back to 8.1% growth in April and 4.8% in May. Meanwhile, imports fell 3.4% y/y in May, the fourth successive period in decline. In Mexico, first-quarter GDP returned to q/q growth, and the country’s central bank twice cut rates by 50 bps, to end the quarter with its key interest rate at 8.0%. However, Mexico’s annual inflation rose, posting 4.42% in May. In Brazil, the central bank added a total of 75 bps to its key interest rate as inflation persisted above 5% for the period.

The FTSE Asia Pacific ex Japan Index advanced by 6.0% in sterling terms and 8.5% in local terms. At the country level, India, Taiwan and Australia were among the strongest markets. India’s central bank reduced its key rate on two occasions during the quarter, helped by a weaker inflation backdrop. Indeed, annual inflation reached 2.82% – the eighth successive month of softening price rises. India’s annual GDP growth was 7.4% for the first three months of 2025, up from 6.4% in the fourth quarter of the previous year. The Australian central bank cut its benchmark rate by 25 bps at its meeting in May, as inflation risks reduced. Australia’s inflation remained at 2.4% during the first quarter.

The yen strengthened against the US dollar but lost some ground against sterling.

In fixed income markets, government bonds decreased in sterling terms but rose in local currency terms. In the US, the 10-year Treasury yield finished the quarter broadly where it started, moving from 4.21% to 4.23%. However, in the middle of the period, the yield hit peaks of over 4.50%, in part because of Moody’s downgrade of its US sovereign debt rating, and a weak US Treasury auction. German 10-year bund yields dropped (prices rose) amid further easing in ECB monetary policy and helpful inflation data. French, Spanish and Italian 10-year bond yields also fell back. The UK 10-year gilt yield declined. Credit declined in sterling terms, but advanced in local terms. Investment grade and high yield bonds outpaced government bonds. Emerging market local currency government debt increased in sterling and local-currency terms, helped by the US dollar’s weakness.

The FTSE EPRA Nareit Developed Index, a measure of the performance of Real Estate Investment Trusts (REITs), declined 1.7% in sterling terms and 3.9% in local terms. Note that REITs tend to be sensitive to interest rate expectations. During the three months to end-May – the latest period with available figures – the MSCI UK Monthly Property Index added 1.9%. In the UK commercial property market, the office and industrial segments have generally seen robust demand, while retail has tended to lag in recent quarters.

* All index data are shown in total return sterling.
Source: FE Analytic