Hiba Mouallem
Hello and welcome to another weekly podcast by BNP Paribas Wealth Management. I'm Hiba Mouallem, investment strategist, and I'm joined today by our Global Chief Investment Officer, Edmund Shing, to discuss his market review for the past year, 2025. Hello Edmund.
Edmund Shing
Hello, Hiba.
Hiba Mouallem
2025 has been a very volatile year, filled with events among which the inauguration of President Trump at the beginning of the year, geopolitical risk rising worldwide and the announcement of the increase of US tariffs, which shocked the markets, a new prime minister in Japan and many others. So to start with, could you please provide us with a global macroeconomic review of this year?
Edmund Shing
Yes of course. So it's quite interesting that certainly, as you mentioned on the geopolitical front, we've had a lot of volatility. And yet, surprisingly enough, the global economy survived rather well. We have global economic growth that remains positive. We are mid-to-late cycle in the business cycle in the US, Europe, China and Japan. So in all the major regions, we continue to see growth.
At the same time, we are also generally seeing stable-to-lower interest rates. And we do expect, for instance, the US Federal Reserve, who's just cut in the month of December, we expect them to continue to cut next year and to be followed by central banks in a number of emerging markets. Generally, the interest rate environment remains pretty favourable for financial markets as well.
Lastly, we can talk about inflation. Well of course inflation rates, which were extremely high post the outbreak of war in Ukraine in 2022, have remained high in 2023, but have been steadily declining since, and 2025 was a year in which inflation rates generally declined further. There may not be the 2% central bank target yet in many regions, but they're getting closer. That is a generally favourable outcome.
Now when you look at financial markets, what is the result been? The result has been quite a positive performance across the board, which is unusual. Normally some markets are positive, some markets are negative. But this year, similar to 2024, in fact, pretty much all asset classes have delivered a positive return to some degree.
Hiba Mouallem
Okay. Thank you. So to start with and maybe to go more into detail on the bond market and in particular, as you mentioned, in the context of global moderate and inflation rates. How have central banks dealt with that?
Edmund Shing
Well, as I've said, central banks have been quite keen to lower rates in some cases, such as in the US, despite the fact that the inflation rate is not back to their 2% target. But they've cut rates anyway in light of the fact that inflation rates are falling. So that's one thing.
I think what is very important to remember is that we started the end and we continue the year, in fact, with very high sovereign debt levels in the US, in Europe, of course, in Asia. Despite that, and despite the need to refinance these high debt levels, global bond yields have remained pretty well contained. In fact, if we look at one example, the US 10-year benchmark Treasury yield, which was at 4.8% in May, is now closer to 4% today. So actually bond yields, particularly in the US, have declined.
That has been and in spite of this high refinancing need, it is quite clear that governments have managed to in general refinance their debt loads without too much difficulty this year. Of course, we need to see if that will be again the case in 2026, where refinancing needs, particularly of the US, do remain high. But what we can say is the combination of governments and central banks have been somewhat, I think, inventive in finding ways to refinance their debt levels while keeping those interest costs relatively stable.
Hiba Mouallem
On another subject, we have seen that since the inauguration of President Trump in the USA, the US dollar has weakened. Can we consider this as a consequence of Trump’s new policies?
Edmund Shing
I think we can, which is quite interesting because, again, when Trump was elected in November 2020, the initial view of financial market actors, was that the dollar should strengthen, that he would be very dollar-positive because he would be very good for growth. He would want, and he would raise tariffs, and all of this would be very dollar-positive. But in fact, he has raised tariffs, absolutely, particularly, as you mentioned, in April, the so-called “Liberation Day”, we had a huge wave of global tariffs put in place by the Trump administration.
And yet the dollar has in general weakened, certainly weakened substantially over the first part of this year, has then stabilised or even rallied a little bit in the second half. But now we're starting to see, as we are in the month of December, we start to see renewed weakening of the dollar. The Fed has cut interest rates again. In fact, you've seen some backtracking by the Trump administration on tariffs. Let's not forget as well, one very important variable is going to be the decision of the Supreme Court in the US, which is coming up as to the legality of the tariff policy put in place by President Trump as you remember, under executive order. The question is, was that legal? Should it not have gone via Congress? And so we may see further pulling back of tariffs, which in my view, can, added to the continued lowering of interest rates by the Fed, tend to be rather dollar-negative, and should lead to depreciation of the dollar, even to an even greater degree than we've seen already, versus other major currencies.
Hiba Mouallem
Maybe moving on to the equity side, we saw that the stocks were able to recover following the important correction they had in April, providing high returns worldwide. What can you tell us about the equity market this year?
Edmund Shing
The equity market is a funny beast because clearly the major theme, particularly in the US, has been AI. There is, of course, a massive debate around whether we're in an AI bubble or not, similar to the tech bubble of 2000. I think the consensus, and certainly I would argue we may well be in a form of bubble, but there's no way of knowing how close to the middle or the end of such a bubble we are. As we know, irrationality in financial markets can continue for far longer than you think possible. And this is something that John Maynard Keynes said many years ago, and it's still true today.
So even if we are in a form of AI bubble, do not be too hasty in calling the end of this bubble because they can go on for a very long time. Yes, valuations are high in the tech sector, but what is interesting is that we have had strong performance actually more from the rest of the world, and driven as much by other sectors as by tech. We can take the example of Europe. Europe in common currencies vastly outperformed the US. Japan vastly outperformed the US. South Korea vastly outperformed the US. China vastly outperformed the US, partly through the depreciation of the dollar. But actually, even in local currency terms, they've performed very well. In many cases, not led by technology. In the case of Europe, actually led by the financials, the banks. Again, even in Japan, yes, tech has done well, but Japanese banks have done very well. So we should be clear that while it's very growth- and tech-oriented, in terms of the trend in US stocks, this is a lot less true for the rest of the world, actually, where value and cyclical sectors, like banks and industrials, have actually performed very well. I would say it's not just about tech in AI. I think 2026 could be more of the same. It might be less about tech and AI. We continue to see leadership rotating to these more cyclical sectors, such as financials and industrials.
Hiba Mouallem
Finally looking at commodities, commodities have been the star of this year with precious metals rising to new all-time highs. What are the reasons for these increases?
Edmund Shing
Well, again, increasing uncertainty, you've mentioned the geopolitical political volatility. That's certainly one benefit, particularly for the precious metals and for gold. Gold likes crisis and uncertainty, and it's done very well out of that. Persistent global central bank buying of gold to replace US dollar reserves with gold as being a second factor. In fact, gold is now the second-most important asset after US Treasuries on the balance sheets of major central banks outside of the US. So gold continues to play a very important role there.
Thirdly, you've seen a lot of retail buying of precious metals, predominantly of gold following the strong performance. That has reinforced the performance. But that's the story for gold, which is a long-term store of value.
However, we can broaden that out and say, look outside of gold. Other precious metals have actually done even better: platinum, silver. And these are metals which I would say have a twin purpose. Yes, they are precious metals. So they have a store of value argument, but they also have very large industrial uses. If we look at silver for instance, we can see that industrial use has grown substantially and we are in a supply demand deficit. In other words, supply is not keeping up with demand in terms of silver or in terms of platinum, and that is reflected in the strong prices.
We can even broaden beyond that. And so outside of that, we see a lot of strength in other areas of commodities, such as industrial metals. Think largely of copper and aluminium, which have been very strong performance this year and which we still like for next year as well, given their role in electrification of the global economy. We can even think to certain types of energy, uranium being one which is performed well. A second one is clearly natural gas, particularly in the US, where we see growing electricity demand fuelling higher natural gas prices because we see, at the margin, a lot more generation of electricity will be done by natural gas. So all of those I think continue to drive commodities higher.
We've seen really quite a broad-based bull market in commodities in 2025. And this is what we expect to see continue in 2026, because we see the many funds, clients, institutions are still very underweight commodities in their global asset allocation after many, many years when of course, commodities underperformed. So that was natural, but they still haven't increased their weightings to anywhere near where we think they should be today. So we think there's more potential for accumulation of commodities on the investment side into 2026.
Hiba Mouallem
Very interesting. Thank you very much, Edmund, for your review of the year. And hopefully the 2025 positive financial market momentum will persist in 2026. I would like to thank also our audience for listening to our podcast. Please like, share and subscribe to our series of podcast. Until next time, goodbye.