As equity markets continue to make new all time highs, investors are naturally worried about valuations as well as growth slowing down. Moreover, as seen in the selloff on 10 October, triggered by renewed tariff concerns between US and China, we may continue to witness volatility. However, historically, we have generally seen equities perform well during late-cycle slowdowns, provided we avoid a recession and especially, if there is policy easing. 

While it is important to be aware of your risk appetite and diversify into different asset classes and regions/sectors, it is not advisable to time the markets just because equity markets are at all time highs or look expensive.

Global equity market 

In a robust third quarter, the Materials sector led performance, driven by strong gains among gold miners. Technology followed closely, with both Information Technology and Communication Services rebounding sharply in the post-Liberation Day pullback. In contrast, traditional defensive sectors – Healthcare, Consumer Staples, and Utilities – underperformed, underscoring the market’s risk-on sentiment in the quarter.

By region, China is the top-performing market in the third quarter. Unlike the first half of the year, this rally was led by the onshore market, fueled by growing investor optimism around reflation expectations and the development of a more self-sufficient AI industry. China also benefited from the “anti-involution” theme, which reflects a shift toward more rational capacity and pricing dynamics, as a result.

Japan equities delivered strong returns, supported by expectations of an improving domestic political outlook following the ruling Liberal Democratic Party election, as well as a catch-up in performance relative to other markets. 

With China offshore markets performing well in Q1, Korea in Q2, and China onshore & Japan performing in Q3, the North Asia region has been strong performers year-to-date. Alongside Europe, it continues to offer compelling diversification opportunities outside of the US.

Global fixed income market

The global aggregate index (on a hedged basis) rose 0.5% for the quarter. Similar to equities, emerging markets debt outperformed its developed market counterparts. Given the risk-on sentiment, high yield bonds also performed well, with spreads tightening to as low as 250 basis points by the end of Sep. However, following the equity market pullback on 10 Oct, spreads widened again later in the month. 

Yields on US 10-year Treasury fell 7.8bps to 4.15%, following the Federal Reserve’s dovish pivot and first rate cut in 9 months marked in Sep 2025. During the quarter, the yield curve steepened as the 2 year fell 11.1 bps to 3.6% while the 30 year fell 4.3 bps to 4.7%. 

With the yield curve steepening and investors demanding higher term premiums, higher quality longer duration bonds present greater opportunities to capture yield, but it also poses greater risk as longer duration bonds are more sensitive to changes in interest rates. 

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