MONTHLY MARKET UPDATE

2 September, 2025

Author: Jesmar Halliday, CFA

Equity markets around the world displayed considerable divergence in August 2025, with Asia firmly at the forefront. Chinese equities powered ahead, buoyed by investor optimism towards government stimulus measures and a stabilisation in sentiment after months of uncertainty. The CSI 300 surged by more than 10%, making it one of the strongest performers globally for the month. Elsewhere in emerging markets, Brazil’s Bovespa advanced close to 6% on the back of resilient domestic demand and a supportive commodity backdrop. Gains were also seen in Canada and Indonesia, with advances of roughly 5% and 4% respectively, highlighting the strength across multiple developing economies.

In contrast, developed markets produced more uneven results. The United States enjoyed a broad-based rally, with all the key benchmarks in positive territory. The S&P 500 and Dow Jones rose between 3% and 4%, the Nasdaq delivered steady gains supported by robust technology earnings, and the Russell indices performed well across both large- and small-cap segments. Investor appetite for mega-cap names persisted, with the Magnificent 7 advancing around 2%. Europe, however, lagged noticeably. Germany’s DAX and France’s CAC 40 ended the month in negative territory, while the Euro STOXX 50 and MSCI Europe posted only modest advances. In the UK, the FTSE 100 edged slightly higher thanks to its global commodity exposure, but the FTSE 250 declined, reflecting concerns about the domestic growth outlook. Peripheral markets such as Portugal and Hungary produced only incremental gains, leaving the region trailing behind both North America and Asia.

Sectoral performance further underscored the divergence. In the U.S., materials benefited from firm demand for metals and construction products, while healthcare enjoyed steady inflows thanks to its defensive qualities and solid earnings. Energy stocks held firm despite oil price volatility, aided by supply-side tightness, while communication services advanced on the continued strength of large digital platforms. Financials and consumer discretionary shares also contributed positively, with banks reporting stable earnings and retail and leisure names enjoying healthy flows. At the same time, utilities and industrials lagged as investors rotated away from defensives and weaker global trade weighed on cyclical activity. Europe, meanwhile, saw industrials and technology slide by more than 2% each, while consumer discretionary and energy stocks offered rare bright spots, with household spending proving resilient and commodity support lifting the sector. Healthcare again acted as a defensive anchor, cushioning otherwise lacklustre market momentum.

Bond markets delivered a fragmented performance during August, with developed market sovereign debt firmly under pressure while certain areas of U.S. credit and emerging market high yield fared better. UK gilts led declines, particularly at the long end of the curve, falling nearly 3% as inflation concerns persisted and demand for safe-haven assets faded. Eurozone government debt also retreated, reflecting investor scepticism about how quickly the European Central Bank could ease policy.

Investment grade credit in emerging markets struggled, especially in Europe. Euro-denominated corporate bonds slipped by about 1%, while Indian government securities also weakened amid global liquidity constraints and currency volatility. By contrast, the U.S. yield curve showed greater balance. Short-dated Treasuries gained modestly as investors favoured defensive instruments with attractive carry, while longer-dated bonds defied the global trend, rallying more than 1.5% on dovish hints from the Federal Reserve that revived rate-cut expectations. U.S. investment grade corporates followed suit, producing solid returns alongside Treasuries. High yield bonds painted a more mixed picture. Lower-rated CCC debt tumbled nearly 2% as concerns around default risk intensified, whereas BB and single-B paper in Europe produced marginally positive results. U.S. high yield proved more resilient, rising between 1% and 1.5% thanks to steady corporate earnings and ongoing inflows. Emerging market high yield was the best performer, advancing around 1.5%. Continued demand from global investors seeking yield, combined with a stabilisation in several large sovereign issuers, supported the segment. Importantly, volatility remained relatively low in this area, bolstering its appeal against an otherwise unsettled fixed income backdrop.

Central banks remained a major focal point throughout August. In the U.S., weaker employment and cooling inflation data encouraged markets to increase bets on multiple rate cuts before the end of the year. Treasury markets responded positively, though late in the month sentiment turned unsettled after an extraordinary attempt by the White House to remove a Federal Reserve governor. This raised alarms about the independence of the central bank and heightened concerns over long-term policy credibility. In Europe, the policy environment was more complex. Inflation showed tentative signs of moderating but not enough to justify aggressive easing. The ECB struck a cautious tone, wary of cutting too quickly against a backdrop of weak growth. The Bank of England faced similar dilemmas, as long-dated gilts sold off and doubts lingered about whether inflation had truly been subdued. In contrast, central banks in Asia leaned towards more supportive measures, with Beijing signalling stronger policy backing to steady equity markets and reinforce economic momentum.

On the geopolitical stage, tensions remained elevated. Washington escalated trade frictions by extending tariffs across a wide range of imports, unsettling partners and competitors alike. While short-term effects included stockpiling activity that supported some commodity exporters, the longer-term risks to global demand were clear. In Eastern Europe, Ukraine stepped up its drone campaign against Russian energy assets, disrupting refining capacity and creating fuel shortages inside Russia. These events amplified instability in energy markets already wrestling with excess supply.

Important Information:

This article was prepared by Jesmar Halliday, CFA, Portfolio Manager at MZ Investments and is intended solely for information purposes. The contents of this article should not be construed as investment, legal or tax advice, or as a recommendation to buy, sell, or hold any securities, investment strategy or market sector. The information contained in this article was obtained from sources believed to be reliable and has not been verified independently. MZ Investments, its directors and employees give no warranties of any kind, expressed or implied, with regard to the accuracy, correctness or completeness of this article and accepts no responsibility or liability for any loss or damages arising out of the use of all or any part of this article. MZ Investments is under no obligation to update or keep current the information contained therein. All investments involve risk. The value of investments may go down as well as up and investors may not get back the amount originally invested. Investors are urged to seek professional advice before making investment decisions.

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