Commentary for October 2025

Market Overview

Global equities remained in an ebullient mood, powering ahead a further 4.5% during October. Investors shrugged off uncertainties surrounding a slowing economy, political dysfunction in Washington and a re-escalation of trade tensions to focus on positive corporate earnings and expectations of lower interest rates in the US. Emerging and Asian markets led the way, with both regions gaining 7%, while Japan, the US, the UK and Europe rose by 6%, 5%, 4% and 3%, respectively. Gold and silver touched record levels once again before pulling back to end the month 2% higher.

 

The trade war between the US and China came back into focus, as President Trump announced a 100% tariff on Chinese imports from the 1 November in response to China’s restriction on exports of critical rare earth metals. A meeting was subsequently announced between the two leaders, during which a one-year trade truce was announced.

 

The US Federal Government shut down at midnight on the 30 September, as the Senate failed to pass a funding bill approved by the House of Congress. Agencies have furloughed 775,000 non-essential workers, delaying services which, importantly for financial markets, included the release of key economic data. President Trump urged Senate Republicans to stand firm, stating that he’ll meet with Democratic leaders only after the impasse ends. While the median length of previous shutdowns is four days, the 2018 precedent lasted five weeks. Economists have suggested that around 0.15 percentage points will be knocked off US economic growth for each week that the Government remains closed. Historically, markets have looked through such events as political theatre, and this has been the case so far.

 

The Government may be shut down, but AI is keeping the lights on in the US economy. Markets were boosted by some better-than-expected earnings from big tech. Alphabet, Amazon, Apple, Meta and Microsoft all saw impressive earnings growth over the past year, although, with the exception of Microsoft, they forecast that growth would slow to a much more pedestrian range of 1% to 7% over the coming year, as a result of heavy spending plans. Elsewhere, there were further positive surprises to earnings across the banking, healthcare and natural resource sectors.

 

US data was thin on the ground in light of the shutdown, making it more challenging to gauge the strength of the US economy. Private payrolls fell by 31,000 in September, well below predictions, while consumer confidence slid to a five-month low. The Consumer Price Index rose by 3% in September, slightly above August’s 2.9% print but below forecasts. This paved the way for the Federal Reserve to cut interest rates for the second month in a row to a target range of 3.75% to 4.00%. However, the accompanying statement struck a more cautious tone, warning that another reduction before the year end was “not a foregone conclusion”. Treasury bond yields closed marginally lower at 4.1%, as traders expect that looser monetary policy will stave off a more serious economic downturn.

 

The Bank of England, meanwhile, is dealing with an unhelpful backdrop of stubbornly high inflation and a slowing economy, as previous tax hikes have increased labour costs and reduced consumer spending power. The most recent data revealed that the economy grew by just 0.1% during August, while inflation remained at 3.8% for September, although this was below expectations of a further rise to 4.0%. Unemployment crept up to 4.8%. Policymakers chose to keep interest rates on hold ahead of the Autumn Budget on the 28 November, but bond yields fell from 4.75% to 4.5% in anticipation of a cut in December. The latest research published by the Institute of Fiscal Studies (IFS) suggests that Chancellor Reeves will have to fill a £22bn fiscal hole in public finances just to keep the £10bn headroom created in March and avoid breaking the government’s own fiscal rules. Tax hikes are seen as inevitable, the question being one of where the burden will fall.

 

Japanese equities moved sharply higher in response to the election of Takaichi as leader of the ruling Liberal Democratic Party. The likely new Prime Minister is a conservative and long-time ally of the late Shinzo Abe (Prime Minister from 2012-2020). Investors are hoping that the new leadership will provide a fresh impetus for growth and reform in Japan.

 

Looking Forward

Equity investors have paradoxically bought stocks on the deterioration of economic data under a “bad news is good news” framework, hoping that slower growth will prompt the US to join the global rate-cutting cycle that is in full swing elsewhere. So far, this has proved correct. The Federal Reserve’s tighter policy regime appears to have ended. Recent cuts in rates and the ending of quantitative tightening (selling the bonds held on its books back into the market to normalise policy) mark a clear shift to a more favourable policy regime that is positive for financial markets. Futures currently imply a third rate cut in either the November or December meeting, lowering the target rate to a range of 3.5% to 3.75% by the year end, despite ongoing inflationary concerns. Over the medium term, the danger remains that cutting rates too soon risks a resurgence of price pressures. But for now, the bias is firmly towards easing.

 

In this environment, the outlook for real assets is increasingly attractive for investors, where the winners would be commodities and precious metals, along with oil and mining companies. Precious metals have taken an early lead, but we would not be surprised to see a revival across the commodity and energy spectrum from here.

 

With equity markets close to record levels and valuations in the US becoming stretched once again, the narrow leadership and increasing reliance on AI spending as a driver for both the market and the wider economy are a growing concern. The market will likely need to broaden to maintain momentum. Robust diversification is essential to reduce risks linked to the over dependence on the fortunes of US mega cap stocks.

 

The scale of investments going into infrastructure for AI is extraordinary, as major players attempt to outspend each other to get to the front of the race. Big tech is spending nearly $400bn on AI infrastructure this year and over $5tr is estimated for the next five years. Yet AI revenue is only $20bn at present. It will need to grow 100-fold by 2030 to justify this build out. For now, share prices are defying growing scepticism over when the payoff will arrive. Questions are also being raised over the creative ways that key players are funding each other. For example, NVIDIA invested $100bn in OpenAI (the company behind ChaptGPT), which used the funds to buy server capacity from Oracle, which used the funds to buy chips from NVIDIA. The circular revenue from this transaction boosted the earnings and valuations of all three companies involved.

 

The headline index in the UK has had a standout year so far. However, nearly two-thirds of the total return has come from just twelve large cap stocks, including the banks, Rolls Royce, BAE Systems and Astra Zeneca. Most stocks have been left behind as a result of the moribund economy and pessimism surrounding the Autumn Budget. This is reflected in the low valuation of domestically orientated equities. However, what matters to markets is the difference between expectations and reality and the current level of expectations is extremely pessimistic.

 

On a risk versus reward basis, small cap stocks present the most compelling opportunity. Over the last decade the small cap market has significantly underperformed the large cap market. Historically, small caps have been the better investment over longer periods of time and there is reason to expect this relationship to mean revert at some stage. Investors may not have to wait long, as past periods of outperformance have tended to coincide with interest rate policy easing cycles. This is a global phenomenon but is especially the case in the UK, where it wouldn’t take much to trigger a small cap re-rating from current levels. The upside case is that a cyclical upswing drives earnings and share prices higher. In the meantime, private equity investors continue to bid for low-priced assets at a notable premium to current levels, creating an alternate tailwind for share prices.

 

Recent Portfolio Activity

Gold‘s run since late 2023 has been remarkable. Our exposure to both physical bullion and gold mining shares across standard portfolios has been a major contributor to strong returns and significant outperformance versus benchmarks. While the investment case remains intact, in the short term the price action has likely run ahead of fundamentals, and we have taken action to reduce the total position size.

 

The profits have been rotated into the existing position in the Guinness Global Energy Fund. Traditional energy is at the opposite end of the cycle to the precious metal space, remaining deeply out of favour. The bear case for oil is well known, it is mostly used in transport, so growth in electric vehicles has caused demand growth to slow. The bull case comes from chronic underinvestment, geopolitical tensions, growing demand from non-OECD countries and new demand from data centres and AI. Overall demand remains at an all-time high and inventories have fallen to low levels, and so it would not take much for supply to move into a deficit, sending prices higher. History suggests that such periods of bearishness generally represent an excellent entry point.

 

Our Strategy

The opportunities for active long-term investors are expanding globally, supported by a broadening out of growth drivers away from excessive concentration on a handful of mega cap technology stocks in the US. A strategy based on buying undervalued assets has proved the best way to ensure superior returns over the long term and argues for a more globally balanced approach to asset allocation. Within equities, our preferred regions are the UK, Japan, Asia and emerging markets.

 

UK equities remain under owned despite their recent strong performance. While the domestic backdrop is challenging, three quarters of the index’s revenues are derived abroad, and thus a resilient global economy is supporting returns. Moreover, while there is much focus on the level of UK public sector debt to GDP, the private sector has reduced its debt ratio from 145% in 2011 to just 74% today. The market offers solid balance sheets, a high yield and valuations that remain low by international standards, suggesting there is still value to be unlocked.

 

The election of Takaichi in Japan has raised hopes for a revival of “Abenomics”, with a focus on economic stimulus, structural reform, deregulation and corporate governance. These are all market-friendly policies that should lead to a re-rating of equities, which still trade at a significant discount to other major markets (with the exception of the UK).

 

Emerging markets are having a stellar year led by Chinese equities, which are back in a bull market. Chinese tech stocks have been in the spotlight, following gains in AI and a dominant global position in other innovation-led sectors such as electric vehicles, illustrating how quickly China has moved up the value chain. These new industries are driving a new era of growth in an economy that has struggled to gain traction since the bursting of its property bubble. Despite this, the Chinese equity market remains just 3% of the total All-World index, which is less than the current value of Apple.

 

While equities remain our preferred asset class, the prospect of lower rates means that bonds should continue to outperform cash. From an income perspective, yields are now attractive in both absolute and real terms (relative to the level of inflation). Bonds also provide diversification in the case of slower growth but will not protect portfolios from the possibility that inflation remains higher for longer. Upside may also be capped by concerns over the sustainability of government debt, as policymakers lack the will to cut spending.

 

The current environment argues for broader diversification, including inflation hedges such as energy and commodities and geopolitical hedges such as gold, alongside core holdings in equities. As well as reducing risk, incorporating additional asset classes allows us to capitalise on wider opportunities that exist outside of traditional equities and bonds.

 

We continue to own gold as essential portfolio insurance. We have held the view for some time that gold is resuming its role as the global reserve asset as a result of higher geopolitical risk, rising inflationary expectations and deteriorating fiscal trends. This is driving a powerful bull market, where multiple pockets of global capital, led by central banks, are diversifying away from dollar assets into gold as a safe monetary asset. For gold mining equities, current prices are having a transformative effect, translating into record profit margins and the highest growth rate of any sector. Despite this, the sector currently trades at a reasonable multiple of 12X earnings.

 

Overall, we continue to manage investments in a manner that allows us to capture the upside in financial markets while also effectively controlling risk to dampen volatility and smooth the path of returns.