Firstly, I hope you had a wonderful Christmas break and managed to get some well-deserved rest after what was quite the year last year for markets. Speaking of Christmas, unfortunately there was no real Santa rally in December. But global equities did end the month modestly higher in dollar terms, closing the year on a genuinely positive note. In Sterling terms, they were actually slightly down for the month, as the dollar depreciated against Sterling.

December was characterised by relatively low volatility and, more importantly, a notable divergence in equity returns between the U.S. and the rest of the world. A resilient global economy, despite trade tariffs and geopolitical uncertainty, helped markets outside the U.S., as did the weaker U.S. dollar, which particularly benefits emerging markets. Emerging Market equities were among the best performers in December, though there was meaningful divergence between countries, as seen throughout 2025. Latin American countries such as Chile and Mexico were strong, supported by generally strong commodity prices (oil excepted), while China lagged due to mixed economic activity data. The best-performing countries over the month were Korea, South Africa, and Taiwan, with returns in low double-digit or high single-digit territory.

Last year was the best year for Emerging Markets since 2017, and they outperformed all other major equity regions. Closer to home, UK equities also performed well, supported by lower-than-expected inflation and monetary policy easing, with the Bank of England cutting the bank rate to 3.75% mid-month. Investor confidence in ongoing cuts was reinforced by data showing the UK economy unexpectedly contracted slightly by 0.1% for the second month in a row in October.

In Europe, equities performed similarly but for different reasons—growing confidence in the economic outlook and potential for broader earnings growth. Economic survey data softened slightly but remained expansionary. In Japan, returns were modest. The Bank of Japan raised its policy rate to 0.75%, the highest level in 30 years, and signalled potential for further hikes, but markets were unimpressed by the lack of clarity on timing. The Yen fluctuated, resulting in about a 1% return in local currency but a -1% return to Sterling over December. Similarly, the U.S. equity market was flat in local currency terms and down about 1.5% in Sterling terms, a significant drag on global equities overall given the U.S.’s dominant weight in global indices.

Beneath the surface, mega-cap technology stocks gave way to cyclical stocks, creating a genuinely broader U.S. market. While some mega-cap tech stocks did well, investors were discerning, and leadership shifted to cyclical value stocks—a trend seen across most major regions. Cyclical sectors such as Materials and Financials led globally, supported by resilient demand and a stabilizing interest rate environment. Over the year, growth versus value wasn’t a key driver of returns; both delivered broadly similar performance.

Fixed income market returns were more muted than equities in December, with government bonds down marginally, investment-grade credit roughly flat, and high-yield credit up just under a percent. Yields rose at the long end of the curve in most major regions, meaning short-dated bonds continued to outperform. Credit spreads narrowed in both investment-grade and high-yield spaces, supporting overall returns.

Central bank policy divergence continued: the U.S. and UK were on an easing path, Europe and countries like Canada, Australia, and China were on hold, and Japan remained an outlier with its hiking cycle. Looking at asset class returns for the year, well-diversified investors across the risk spectrum should have experienced positive returns. Equities outperformed fixed income, and within equities, Emerging Markets outperformed Developed Markets. Within fixed income, higher-yielding bonds outperformed more defensive investment-grade government and corporate bonds. Outside traditional asset classes, gold had a great year, up about 60%, while crude oil struggled, down around 20%.

While 2025 ended calmly, 2026 started with a bang: the U.S. military operation in Venezuela on January 3rd, in which President Nicolas Maduro and his wife were seized and transported to the U.S. to face criminal charges. This marked a major departure from diplomatic convention and is a significant geopolitical event, primarily affecting oil markets and related investments so far. Beyond that, investors have largely ignored the event, but we will monitor and analyse the situation for potential market impacts.

For now, I wish you a Happy New Year and lots of success in both your personal and business lives. One positive is that client reviews in the coming days and weeks should hopefully be constructive, given good market returns. As always, if you have any questions, please reach out.

Kind regards,

iPensions Wealth Team

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