Market Dynamics and Investment Insights: September 2025 Webinar

In September 2025, the investment landscape has been shaped by a series of significant events and policy decisions. The Bank of England’s recent meeting and rate decision, alongside the ongoing influence of the Trump administration’s policies, have been pivotal in shaping market movements.

Key Market Events

US Economic Policies and Tariffs

The Trump administration’s imposition of tariffs on global trading partners, including China and the UK, initially led to significant market volatility. The tariffs aimed to address trade imbalances but resulted in a sharp decline in stock markets, with notable declines in equity markets. The bond market’s reaction, characterised by rising US bond yields, further pressured the administration to reconsider its stance on tariffs.

Interest Rates and Inflation

Interest rates have been a focal point, with the Trump administration advocating for lower rates amidst rising borrowing costs. The Federal Reserve has responded with rate cuts, contrasting with the Bank of England’s decision to maintain rates at 4% due to higher inflation in the UK. Inflation in the UK is expected to peak around 4% before gradually declining.

Economic Outlook

The UK economy, despite facing challenges such as rising inflation and potential tax increases, has demonstrated resilience. Economic growth remains modestly positive, and the services sector continues to expand. The Bank of England is likely to hold rates steady until more evidence of declining inflation emerges.

Globally, the investment landscape is influenced by geopolitical events, interest rate changes, and corporate earnings. While short-term risks persist, markets generally look beyond immediate uncertainties, focusing on long-term growth drivers.

Q&A

Thank you to everyone who joined us, and thank you to Jeffrey and Stephen for your questions during the live session. Please see the answers below:

Jeffrey
Are we heading for a bond market crash and if that were to happen, what would be the impact on equities, and is this something you are hedging against?

• It could be argued that we’ve already had a bond market crash.  UK gilt yields rose from levels barely above 0% in mid 2020, hitting 4.5% by Autumn 2022.  Higher bond yields equal lower bond prices.  Therefore, the increase in yields led to very negative returns from UK gilts – an investment in the Gilt index at end July 2020 led to a total return of -33% by Autumn 2022.  Returns subsequently recovered a little, but for investments in gilts made in mid 2020, returns remain very poor.  (Investments in the gilt index made after Autumn 2022 are mostly showing positive returns.)
• Other bond markets also saw large increases in their yields (and declines in prices), but the price impact of the UK government bond market was worse than most as the UK government bond market is a ‘long duration’ market; this reflects the long average date to maturity of the UK government bond market versus other markets.  This is actually beneficial to the UK government as it takes longer for the outstanding debt to mature (and be refinanced at higher rates) versus most other nations.  The analogy would be having a longer-term fixed-rate mortgage, extending the time to refinance at higher current rates
• If we were to see a similarly large increase in yields now, the impact on returns would be less severe, but it would still be severe.  The impact on returns would be less severe as the starting yield is higher compared to 2020, and also as the ‘duration’ of the market is lower, which reflects the technical nature of bond duration, which mechanically declines as yields increase
• If we did see another bond market crash, this would likely put pressure on equity markets.  Our working assumption would be that equity returns would be similar to those seen in 2022, that is, underperformance from higher-growth, technology-focused areas of the market, with stronger performances from more lowly valued areas of the market.  Sectors particularly exposed to interest rates, like property could also be particularly impacted.
• Hedging against this would be difficult, not least as it would depend on which government bond markets were impacted or whether it were a global event
• Similar to 2022 it would likely be impossible to fully avoid the impacts of a bond market crash without moving one’s investments entirely into cash, which risks missing out on returns if there is no bond market crash (which is our base case assumption), nevertheless, allocations to lower valued parts of the equity market like UK equities may outperform in such a scenario.  If any bond market crash were specific to the UK, holding material weightings in other currencies, mainly USD would also likely be positive for portfolio returns
• Our base case scenario is that we don’t see a bond market crash, if a crash is defined as an increase in yields similar to that seen between mid 2020 and autumn 2022, however we may see more limited moves occur over shorter time horizons, as we saw with the Truss budget, forecasting these is very difficult as they would likely be triggered by short-term events.  To some extent these events can be self-correcting for two reasons.  One they can force governments to take action, second as economies and governments cannot withstand materially higher yields, such higher yields would trigger forecasts of recession, leading to lower interest rates and ultimately likely lower bond yields.  In extreme weakness for bonds, we could also see central banks step in again to purchase government bonds, as the BoE did after the Truss budget.  It could be that the impact of such an even would be felt more acutely in the currency of the nation concerned rather than the bond market

Stephen
Why investment mostly in USA as Japan looks a better investment by your charts

• Japanese companies have delivered strong earnings growth and also have lower valuations than US equities overall.
• Compared to a global equity index, we do have less in US equities and more in Japanese equities.  However, our total exposure to US equities is larger than our exposure to Japanese equities
• Whilst Japanese companies have delivered good earnings growth and have made good progress on improving their profit margins, their profit margins remain notably lower than the profit margins on US companies.
• Also, in our view, whilst Japanese companies have delivered good earnings growth, the earnings growth delivered by US companies is likely to be of a longer-term more structural nature as it reflects greater exposure to strong trends such as technology and in particular artificial intelligence
• Overall, we think US equities should have a larger weighting in our funds than Japanese equities, but as noted, compared to a global equity index, our US exposure is lower and our Japan exposure higher

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