Endowus Q4 2025 Market Update and Outlook – Diversification reaffirms its relevance

In the fourth quarter of 2025, risk assets continued its positive march higher albeit at a slower pace compared to the third quarter. November and December 2025, in particular saw more muted returns given the elevated uncertainty on geopolitical tensions, high equity valuations, and questions about central bank independence.

We saw wider breadth in the markets with laggard sectors like Healthcare showing the strongest performance in the fourth quarter and Japan, Europe, and Asia ex Japan countries leading the pack on a regional basis.

The US Federal Reserve made two 25bps rate cuts in 4Q25 (Oct and Dec) following its first rate cut in September, bringing the upper end of the Fed funds rate to 3.75%. Despite the cuts, we saw relatively small changes in the 10 year treasury as the yield curve steepened.

Read more: Fed rate cuts, gold and the US dollar

Global equity market 

US tech only showed modest performance (+2%) despite stellar performers such as Alphabet (+28%). This was due to high expectations priced into its high valuations. Instead we saw laggard sectors playing catch up. 

The Healthcare sector in particular rose 9% given its defensive growth characteristics and relatively undemanding valuations. The US biotech sector rose 22% for the quarter proving to be the best performing sub-sector in healthcare. Materials also performed well after being the best performer in 3Q, given the strength of gold, silver, and copper and thus the strong performance of the miners.

The Financials sector benefited from widening net interest margins with yield curves that continue to normalize.

On a regional basis, South Korea and Japan were up 19% and 9% respectively. They were some of the best performing markets thanks to the strength of semiconductors in South Korea and the expectation for positive fiscal and monetary policies from the new prime minister in Japan. This was followed by positive performance in the European market as well as other markets in Asia such as Taiwan. China equities took a breather in 4Q25 following stellar performance up to 3Q in 2025.

For non-Asian emerging markets, Latin America continues to show strong performance in 4Q thanks to its undemanding valuations.

Overall, 2025 was the first year in a long while where Asia and EM outperformed the US equity market by a wide margin and non-tech sectors performed equally if not better than tech.

We believe this continues to show the importance of diversification moving into 2026.

Read more: Is diversification dead?

‍Global fixed income market‍

While the 2 year treasury fell by 14bps to 3.47% in 4Q25, the 10 year treasury rose by 2bps to 4.17% as the yield curve steepened. With a relatively small move in interest rates and spreads, the bulk of the global fixed income returns in 4Q25 have come from carry. 

As credit spreads remain tight and investors continue to demand higher term premiums for longer duration bonds, the ability to diversify away from corporate credit, the ability to be flexible with duration, and the ability to diversify into other regions like emerging markets is increasingly important.

EM debt continues to be the bright spot for fixed income in 4Q25 following its strong performance in 3Q25. 

Building a long-term resilient portfolio with Endowus Hong Kong

As the fourth quarter of 2025 draws to a close, a year marked by dramatic shifts is now behind us. If there is one enduring lesson the markets have taught us, it is that even the most seasoned strategists cannot accurately predict how macro events will play out. 

However, clarity can be found amidst the noise. Spreading your investments across asset classes and geographies will help with diversifying your risk. With market volatility comes opportunities. If you have a long-term investing horizon, as many of us do, these developments may offer an opportunity through steady, regular investing in diversified and risk-adjusted portfolios.

With award-winning, conflict-free wealth advisory and investment platform Endowus, you can plan and manage your money — by investing in Best-In-Class Funds and globally diversified, low-cost model portfolios seamlessly.

Click here to get started on your investing journey with Endowus Hong Kong today.

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Risk Warnings

Investment involves risk. Past performance is not an indicator nor a guarantee of future performance. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. 

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