Global investment market review: Q3 2025 – performance & highlights

In the third quarter of 2025, the MSCI ACWI Index, a representative measure of global equities across developed and emerging markets, rose 9.6% in sterling terms and 8.0% in local terms. The US, emerging markets and Japan were among the strongest regions in local currency terms, while Europe trailed. Growth stocks outpaced value, helped by the technology sector, including stocks exposed to the artificial intelligence (AI) theme. However, a weaker-than-expected US non-farm payroll job report led to a bout of mid-quarter market volatility and stoked hopes that this news would help bring forward US rate cuts, which ultimately resumed in September. As politicians were unable to reach an agreement, a US government shutdown came into effect on 1 October, just after quarter-end. In fixed income, the ICE BofA Global Government Index added 1.7% in sterling terms and 0.4% in local currency terms. Sterling lost ground against the US dollar.

Crude oil futures prices declined amid supply growth and concerns about the demand backdrop. European natural gas futures edged lower on higher gas storage levels in Europe and rising supplies of liquified natural gas from Asia.

The FTSE 100 Index, a commonly used representative benchmark of the UK’s largest equities, was up 7.5% and reached a record high at quarter-end. The FTSE All Share Index increased 6.9%. According to the Office for National Statistics, UK government borrowing levels rose in September. Meanwhile, the UK’s annual inflation rate increased from 3.6% in June to 3.8% in July and August, in part due to motor fuel and food costs. The Bank of England (BoE) cut the Bank Rate by a further 25 basis points (bps) in August but then kept it on hold at 4.0% in September. BoE rate-setters noted lacklustre gross domestic product (GDP) growth but also potential inflation risks. The unemployment rate remained at 4.7% between May and August. The preliminary UK manufacturing Purchasing Managers’ Index (PMI) figure weakened from 47 in August to a worse-than-expected 46.2 in September as output declined. The flash UK services sector PMI saw a reversal of August’s robust improvement as it slowed from 54.2 to 51.9. (Note that a PMI figure under 50 indicates contraction.)

Growth stocks outpaced value, helped by the technology sector, including stocks exposed to the artificial intelligence theme.

In US equities, the S&P 500 Index moved 10.0% higher in sterling terms and up 8.0% in US-dollar terms. The Nasdaq Composite Index, which has a growth focus, was 13.4% higher in sterling and 11.4% up in local terms. Signals of policy easing and strength in growth sectors helped US stocks. Meanwhile, the US struck trade deals with Japan and the European Union, among others. During a speech at the Jackson Hole Symposium in August, the Chair of the Federal Reserve (Fed) signalled that a monetary policy adjustment could soon be warranted. The Fed then instigated its first rate cut of 2025, with a 25 bps reduction in the benchmark rate at its September policy meeting. US annual inflation reached 2.9% in August, compared with 2.7% in July and June, in part due to food price increases. Annualised GDP grew 3.8% in the second quarter, compared with a second estimate of 3.3% and the first quarter’s contraction of 0.5%, helped by a positive adjustment to consumer spending. Non-farm payrolls missed expectations by a wide margin in July and August. US stocks were volatile around the July payroll report but soon recovered. In the wake of the July jobs announcement, the US President dismissed the head of the Bureau of Labour Statistics, which collates the jobs figures. An early reading of the US manufacturing PMI for September remained in expansion but slowed to 52 from August’s final figure of 53. The preliminary services PMI also continued to expand.

The MSCI Europe ex UK Index increased 4.8% in sterling terms and 2.8% in local currency terms. At the country level, Spain, the Netherlands and Italy were among the gainers, while Germany fell back in local currency terms. French stocks gained ground overall but struggled in late August when the prime minister announced a confidence vote in his government in the wake of a budget spat. He subsequently lost this vote and was replaced. The European Central Bank (ECB) kept interest rates on hold as policymakers continued to take a data-driven approach to rate setting against a backdrop of relatively muted inflation. Indeed, eurozone consumer price inflation remained at 2.0% in June, July and August, matching the central bank’s medium-term target. The currency bloc’s second-quarter GDP growth slowed to 0.1% quarter-on-quarter (q/q), compared with an expansion of 0.6% q/q in the first three months of 2025, in part because of tariff uncertainty. Though August’s eurozone manufacturing PMI expanded for the first time in close to three years, the early reading of September’s figure slipped back into contraction. The preliminary services PMI continued to expand.

The MSCI Japan Index was up 10.0% in sterling terms. The yen lost ground against the US dollar. Solid economic news and a trade deal with the US benefitted the market. The Bank of Japan (BoJ) kept its short-term interest rate at 0.5% in July and September but announced it would start selling holdings of exchange-traded funds as it looked to normalise monetary policy. Annual inflation slowed from 3.3% in June, to reach 2.7% by August, helped by falling energy and education prices. Japan’s preliminary manufacturing PMI figure for September saw a worse-than-expected contraction, amid a drop in new orders and output.

The Fed then instigated its first rate cut of 2025, with a 25 bps reduction in the benchmark rate at its September policy meeting.

The MSCI Emerging Markets Index gained 12.6% in sterling terms. China’s equities made strong gains in local currency terms, along with Taiwan, Thailand, Korea and South Africa, while India weakened. China’s gains were helped in part by a decline in trade-related tension with the US and strength in the technology sector, amid AI optimism and government efforts to boost semiconductor supplies. China’s annual GDP expanded 5.2% in the second quarter of 2025, which was a slight slowdown on the 5.4% growth in the previous quarter. Furthermore, Chinese industrial production slowed from 6.8% year-on-year (y/y) in June, to 5.7% y/y and 5.2% y/y in July and August, respectively, as manufacturing slowed. Taiwan’s equity market reached fresh record highs, helped by strength in its technology sector and international investor flows. India was negatively impacted by the announcement of a hefty US tariff. The Reserve Bank of India (RBI) kept rates on hold during the quarter. Meanwhile, the country’s annual inflation dipped from 2.8% in May to reach 1.6% by July – just below the 2% lower band of the RBI’s target range – before bouncing to 2.1% in August.

There was a gain of 11.8% in the FTSE Asia Pacific ex Japan Index and 15.4% in the MSCI AC Pacific ex Japan Index in sterling terms. At the country level, China, Taiwan and South Korea were among the markets to advance. Bank Indonesia unexpectedly cut rates by 25 bps at three successive meetings as it looked to support economic growth. Improved private consumption helped South Korea’s second-quarter GDP to expand 0.7% q/q, compared with the first quarter’s 0.2% q/q contraction. As expected, the Bank of Korea held its base rate at 2.5% over the quarter, though officials indicated that debt levels and the strong housing market in Seoul were being closely watched. Despite its smaller gains, Australia’s shares also reached an all-time high during the quarter, helped by an improvement in domestic confidence.

China’s gains were helped in part by a decline in trade-related tension with the US and strength in the technology sector, amid AI optimism and government efforts to boost semiconductor supplies.

In a volatile quarter for fixed income markets, government bonds broadly moved higher in sterling terms but were outpaced by the rise in corporate bonds. Emerging market local-currency government debt also moved higher. The 10-year US Treasury yield fell (prices rose) from 4.23% to 4.15% as slowing jobs growth and Fed rhetoric led to a renewed focus on the potential for further interest rate cuts. In contrast, the UK gilt market weakened (yields rose). French government bonds struggled on worries that political difficulties may hinder attempts to tackle the country’s debt levels. Yields rose on 10-year Japanese government bonds as comments from the BoJ stoked expectations that interest rates may be increased in the near term.

The FTSE EPRA Nareit Developed Index, a measure of the performance of Real Estate Investment Trusts (REITs), was 5.9% higher in sterling terms and 4.0% up in local terms. Note that REITs tend to be sensitive to interest rate expectations. During the three months to end-August – the latest period with available figures – the MSCI UK Monthly Property Index rose 1.7%. The office and industrial segments have been relatively robust compared with retail, which has tended to lag in recent quarters.

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