[Market Updates] 2025 Quarter 3

Daniel Lee
12 minutes ago
5 min read

Alas, 9 months of 2025 have just passed by.

In this article, we’ll look into the three big themes that have transpired in the third quarter in 2025 which will have a dramatic impact on the markets in the last quarter of this year.

Rate Cut In An ATH Market

Having waited for over 9 months, the US Federal Reserve have finally delivered its first rate cut for the year at the back of a weakening job market and, interestingly, subdued inflation figures.

Based on the dot plot, the market is expecting two additional quarter-point cuts this year, which is one more than the previous projection back in June.

Given that the timing of the rate cut came when the market was at/near record highs, if market history is any form of reliable indicator, the stock market would likely continue to melt up.

Why does it matter? (Neutral - Positive)

A lower interest rate environment is more than welcome in such an environment, as it serves two purposes:

It lowers borrowing costs for businesses, which could help them ease their operating margin compressions for businesses impacted by the ongoing tariffs and trade war.
It ushers back the era of easy money, which creates support for asset prices.

This is important because it helps to support investor sentiments, which in turn allows for the ongoing recovery of the other markets (in particular Asia and Emerging Markets) to continue.

China: Now Investible Again

Despite the uncertainty surrounding the ongoing trade war, the narrative of the Chinese market has shifted once again … all it took was a 50% upside over the last 12 months.

Having experienced three consecutive years of net outflow, global investors are pouring money back into the Chinese market in an attempt to chase after the sharp price growth of the market that they once claimed was uninvestible.

This phenomenon is why, as long-term investors, we should focus on long-term fundamentals instead of investing based on short-term narratives, which often flip-flop depending on day-to-day price performances.

Beyond the market noise, I think investors would be interested in how China has been coping with the ongoing trade war and surprisingly, they’ve been holding out pretty well, as global demand for Chinese goods continues to rise despite a decline in exports to the United States.

Why does this matter? (Neutral - Positive)

An improving sentiment surrounding China is definitely a positive development for Asia and emerging market investors, as it brings back investor confidence and thus creates a stronger catalyst for further recovery in the Asia/EM markets.

Fundamentally, a reduced reliance in the United States would also create a more diversified and stable economic performance against any future actions by the West in an effort to contain China’s development.

This would provide a greater sense of economic stability within Asia as countries are now less sensitive to the impulsiveness of the policy makers in the West, as compared to the pre-trade war times.

India: The New Target?

Something interesting that transpired in the third quarter of 2025 was the sudden sharp deterioration in trade and migration policies between major Western economies and India – most notably the United States.

Washington has moved to impose much higher reciprocal tariffs on a range of Indian imports (tariff rates that in some cases have been doubled or lifted to punitive levels), and senior U.S. policymakers have floated very large hikes to H-1B and other visa fees (measures that would fall disproportionately on Indian workers).

At the same time the U.S. has been urging allies to adopt tougher trade measures on countries seen as enabling Russian energy purchases, and separate talks (e.g., India–EU FTA rounds) have stalled.

Why does this matter? (Neutral)

The sudden turn in the West’s stance toward India is a powerful reminder that no country, not even a long-standing strategic partner, is immune to policy shifts when national interests come into play.

For policymakers, this highlights a key point: political and trade dynamics can change overnight, often without warning, and countries cannot afford to be complacent in their reliance on the United States.

We are likely to see more economies taking a page from China’s experience — actively diversifying their trade, supply chains, and diplomatic ties to reduce vulnerability to U.S. policy shocks.

While this adds short-term uncertainty, in the longer run it could foster a more balanced and stable global economy, where growth and investment opportunities are spread across a wider set of markets rather than concentrated on U.S. dependency.

For us as investors, this underlines the importance of broad diversification across regions. By allocating capital to multiple growth engines — whether in Asia, Europe, or emerging markets beyond the U.S. orbit — we are better positioned to capture opportunities while insulating portfolios from the abrupt shifts in any single country’s policies.

Long Story Short

Thus far, the market has continued its upward trajectory despite the deterioration of global political and trade stability. This came despite an already elevated valuation in the Western market, which while it seemed to go against all investing principles, seems to be a new norm alongside elevated levels of volatility.

Year to date, the MSCI AC Asia Pacific Index is registering around 26% upside while the S&P 500 is registering a 13% upside.

Overall, my stance remains unchanged.

The downside risk of a US recession should not be underestimated. As the saying goes: “When America sneezes, the world catches a cold”. Should a recession materialize, the downside pressure from the US may well cancel out the upside recovery experienced in Asia.

Should the global markets continue to remain elevated without any catalyst for a correction, Asia and emerging markets would likely continue to recover to close the valuation gap.

Regardless of what may materialise in the last quarter of 2025, the course of action for us as investors remains unchanged – and that is to focus our attention on what is to be in the next 10-15 years and not be distracted by the temporary distortion in the economy and markets.

Hopefully, the market will normalise without any major economic crisis. That said, only time will tell.