Richard Warne, Senior Portfolio Manager, Copia Capital
In Q3 we saw regional markets put in more of the strong performance. A quick glance at market Q3 performances: MSCI Emerging Markets is up around 12.5%, Asia (ex. Japan) up over 12.5%, Japan (TSE TOPIX) above 10%. The US had a strong quarter, though on a year-to-date basis is languishing behind all major developed markets.
For the last few years, the US and big tech have been the only games in town but no longer. Anyone with more diversified exposure should have felt – and will likely continue to feel – the benefit of this diversification, particularly if we see any valuation corrections or bubbles bursting.
Checking in on North America
In many ways, it’s difficult to discuss current trading conditions without mentioning Donald Trump. I think we can break down the effects he’s had into four areas:
- Election Euphoria – markets initially excited at the prospect of tax cuts and deregulation
- Liberation Day – there’s a shock as tariffs are implemented quicker and more severely and randomly attributed than anticipated
- TACO – markets begin to expect high tariffs are a bargaining strategy and become more confident that these will be rolled back or implemented at lower rates, or Trump always chickens out
- China – currently the US and China joust over rare earths and AI technology.
The story, so far, has been better than expected. If Trump and XI Jinping can come to terms, then it’s likely markets will take a lot of heart from the two biggest adversaries in global trade averting actions that jeopardises supply chains. In corporate America, earnings and performances have remained surprisingly resilient. GDP has also been strong, with the economy in decent shape, contrary to expectation.
There are some caveats. The US market is still expensive and concentrated amongst tech giants who are heavily tied into the AI bubble and many companies are burning through cash while seeing negative revenues.
Coming up, Trump may try and return to his ‘Election Euphoria’ with a view to the midterms next year by focusing on tax cuts, deregulation and trying to tackle the growing American “affordability” crisis. However, there are concerns surrounding his influence over the Federal Reserve. It’s no secret Trump dislikes that the Fed hasn’t cut rates to his preferred timescales. He selected an ally to join the Fed in September and it’s noteworthy the market is pricing in several consecutive rate cuts. Usually you’d only expect to see this during a recession, which could indicate the market anticipates political pressure on the reserve.
Asia: China, Japan and the rise of EM
China is soaring ahead in terms of innovation and appears to have anticipated and dealt with Trump largely well. Deal or no deal, it’s reasonable to expect further points of tension with China during Trump’s term considering it directly competes with the US in AI, tech, auto and manufacturing. However, China holds a significant bargaining chip with its international monopoly on rare earths.
Japan has emerged through years of corporate sluggishness, deflation and weak growth having implemented reforms that mean companies are running much slimmer and sharper. We think the corporate change story remains firmly intact and is probably encapsulated in the appointment of the country’s first female Prime Minister (Sanae Takaichi). Her focus on corporate reform, fiscal and monetary spending and deregulation provides further tailwinds for the Japanese stock market.
Emerging market’s shining performance this year has largely come off the back of a weaker dollar, with valuations remaining competitive despite gains in the dollar. Considering Trump keeps talking up policies that will keep the dollar weaker, Emerging markets could have higher to climb if they continue to play an important role in supply chains amidst a tariff-stricken world.
Europe ticks along and UK searching for retail investment
Europe has continued to blossom this year, buffeted by tame inflation, allowing the European Central Bank to cut rates quicker and deeper. The Bloc has also come through a period of austerity and stringent regulation, benefiting from stimulus and proactive policy. Corporate Europe has followed suit and increased shareholder friendly policies such as share buybacks and dividends.
The UK has shown remarkable resilience and indicated it can provide good opportunities. Institutional investors have put their money into UK equity, domestically orientated small- and mid-caps have been boosted by interest rate cuts, defence spending stimulus and the stock market has begun to overcome its IPO issues with listings ticking up. A further boost could come from abolishing stamp duty on shares of newly listed UK companies. Much of the UK population hold capital in cash savings and if the chancellor’s decision to cut Cash ISA limits can encourage more retail investing it could be a boost for the equity market and the consumer.
The new normal
There are drivers in place that focus the spotlight on regions that until very recently have been out of favour. Those who have been discerning and diversified in their regional exposure have reaped the rewards. It should also stand them in good stead if we see a couple of valuation corrections in any market bubbles.
Our risk barometer, which incorporates several data points of market health, is at +0.45 indicating reasonable optimism. There are potential headwinds but using regional exposure and fixed income options to derisk portfolios could provide insulation from volatility.
This article is intended for regulated financial advisers and investment professionals only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.
4th December 2025
Copia Quarterly Market Review – Q3 2025: The year of diversified portfolios
Richard Warne, Senior Portfolio Manager, Copia Capital
In Q3 we saw regional markets put in more of the strong performance. A quick glance at market Q3 performances: MSCI Emerging Markets is up around 12.5%, Asia (ex. Japan) up over 12.5%, Japan (TSE TOPIX) above 10%. The US had a strong quarter, though on a year-to-date basis is languishing behind all major developed markets.
For the last few years, the US and big tech have been the only games in town but no longer. Anyone with more diversified exposure should have felt – and will likely continue to feel – the benefit of this diversification, particularly if we see any valuation corrections or bubbles bursting.
Checking in on North America
In many ways, it’s difficult to discuss current trading conditions without mentioning Donald Trump. I think we can break down the effects he’s had into four areas:
The story, so far, has been better than expected. If Trump and XI Jinping can come to terms, then it’s likely markets will take a lot of heart from the two biggest adversaries in global trade averting actions that jeopardises supply chains. In corporate America, earnings and performances have remained surprisingly resilient. GDP has also been strong, with the economy in decent shape, contrary to expectation.
There are some caveats. The US market is still expensive and concentrated amongst tech giants who are heavily tied into the AI bubble and many companies are burning through cash while seeing negative revenues.
Coming up, Trump may try and return to his ‘Election Euphoria’ with a view to the midterms next year by focusing on tax cuts, deregulation and trying to tackle the growing American “affordability” crisis. However, there are concerns surrounding his influence over the Federal Reserve. It’s no secret Trump dislikes that the Fed hasn’t cut rates to his preferred timescales. He selected an ally to join the Fed in September and it’s noteworthy the market is pricing in several consecutive rate cuts. Usually you’d only expect to see this during a recession, which could indicate the market anticipates political pressure on the reserve.
Asia: China, Japan and the rise of EM
China is soaring ahead in terms of innovation and appears to have anticipated and dealt with Trump largely well. Deal or no deal, it’s reasonable to expect further points of tension with China during Trump’s term considering it directly competes with the US in AI, tech, auto and manufacturing. However, China holds a significant bargaining chip with its international monopoly on rare earths.
Japan has emerged through years of corporate sluggishness, deflation and weak growth having implemented reforms that mean companies are running much slimmer and sharper. We think the corporate change story remains firmly intact and is probably encapsulated in the appointment of the country’s first female Prime Minister (Sanae Takaichi). Her focus on corporate reform, fiscal and monetary spending and deregulation provides further tailwinds for the Japanese stock market.
Emerging market’s shining performance this year has largely come off the back of a weaker dollar, with valuations remaining competitive despite gains in the dollar. Considering Trump keeps talking up policies that will keep the dollar weaker, Emerging markets could have higher to climb if they continue to play an important role in supply chains amidst a tariff-stricken world.
Europe ticks along and UK searching for retail investment
Europe has continued to blossom this year, buffeted by tame inflation, allowing the European Central Bank to cut rates quicker and deeper. The Bloc has also come through a period of austerity and stringent regulation, benefiting from stimulus and proactive policy. Corporate Europe has followed suit and increased shareholder friendly policies such as share buybacks and dividends.
The UK has shown remarkable resilience and indicated it can provide good opportunities. Institutional investors have put their money into UK equity, domestically orientated small- and mid-caps have been boosted by interest rate cuts, defence spending stimulus and the stock market has begun to overcome its IPO issues with listings ticking up. A further boost could come from abolishing stamp duty on shares of newly listed UK companies. Much of the UK population hold capital in cash savings and if the chancellor’s decision to cut Cash ISA limits can encourage more retail investing it could be a boost for the equity market and the consumer.
The new normal
There are drivers in place that focus the spotlight on regions that until very recently have been out of favour. Those who have been discerning and diversified in their regional exposure have reaped the rewards. It should also stand them in good stead if we see a couple of valuation corrections in any market bubbles.
Our risk barometer, which incorporates several data points of market health, is at +0.45 indicating reasonable optimism. There are potential headwinds but using regional exposure and fixed income options to derisk portfolios could provide insulation from volatility.
This article is intended for regulated financial advisers and investment professionals only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.