2025 was a positive year for investors, with equities delivering strong dollar returns for the third successive year. But it was also a year that upended many previously safe assumptions about which regions, assets, and markets produce the best returns. Growth broadened beyond the US to world markets (including emerging markets), and a weak dollar materially dampened equity returns for those measuring their gains in other currencies.
As we anticipated at the outset of 2025, the year was dominated by three key themes: US President Donald Trump’s preoccupation with tariffs, the US Federal Reserve’s interest rate-cutting cycle, and the exponential rise of artificial intelligence (AI). Trump’s tariffs threatened to derail market momentum in the first half of the year, but markets experienced a broad, risk-on rally from May onwards, rate cuts boosted equity prices, and contrary to many market participants’ forecasts, the AI bubble failed to materialise.
The year proved to be exceptional in that nearly every major asset class, from developed world equities to precious metals and emerging market stocks, produced positive returns, especially when measured in dollars. Company earnings and the US economy showed remarkable resilience in the face of a volatile policy environment and a disruptive president, with most of the major US indices ending the year well in the black.
For the full year, the S&P 500 was up 17.9%, the Dow Jones Industrial Average gained 12.3%, the small-cap Russell 2000 Index increased 12.8%, and the tech-heavy Nasdaq delivered a 21% return. Returns were bolstered by the outperformance of AI-related mega-cap stocks (Nvidia and Alphabet) and the US Federal Reserve’s lowering interest rates by 75 basis points in the second half of the year.
As noted, the performance of US equities over the past twelve months needs to be seen in the context of a weaker US dollar, with the currency losing 9.4% of its value against a basket of developed market currencies for the year. Reasons for the devaluation of the dollar included outflows of capital to other markets and safe-haven assets, which can be ascribed to factors such as the ‘weaponisation’ of the dollar, ongoing policy uncertainties, the Federal Reserve’s interest rate cuts, as well as political interference in the Fed’s independence.
US outplayed by other markets
The result was that the US equities indices were outshone by most other developed world and emerging market indices in local currency and US dollar terms alike, for the first time in 20 years. Emerging markets were a star performer, with the MSCI Emerging Market index returning nearly 35%.
Latin American markets benefited from a commodities tailwind and favourable political cycles. Chinese equities delivered exceptional performance, returning 31% over the year in dollar terms, boosted by the country’s own AI boom as well as healthy exports due to China’s success in diversifying markets to compensate for Trump’s tariffs.
The asset class that surprised on the upside for the year was precious metals, with a rare alignment between rising equities markets and elevated gold prices. The Bloomberg precious metals index returned 80% for 2025 as central banks continued to add to their gold reserves. Silver outperformed with a return of 150%, while platinum and palladium also surged. This trend may continue should the dollar weaken further in 2026.
South Africa was a strong beneficiary of the roaring trade in precious metals and resources, which, in turn, strengthened the rand, leading to 2025 yielding the strongest local stock exchange returns in years. The JSE All-Share Index rose 42.4% in local currency terms and 63% as measured in US dollars, as the rand appreciated by 12.5% against the US dollar. Over five years, the JSE has now outperformed the MSCI World.
Themes for 2026
We expect similar themes to dominate as in 2025. One key question for the year is whether high-flying AI stocks are overvalued and whether we can expect to see a correction. The Magnificent Seven stocks have delivered consistently strong earnings in recent quarters, but they are currently priced for perfection. We would not be surprised to see these stocks reprice risk and drag indices down in sympathy if they fail to meet their earnings forecasts.
Central bank moves will also be important throughout 2026. Moderating (albeit above target) inflation allowed the US Fed to cut interest rates in the second half of 2025, with tariffs having less impact on prices than anticipated. However, it remains to be seen whether inflationary effects from tariffs start to flow through this year and how the Fed will respond.
2026 started with Fed Chairman Jeremy Powell announcing that the Trump administration has instigated a criminal investigation against him. With Powell’s tenure due to end in May, the probe seems to be a warning to his successor to toe the line. How the Fed balances political pressure to accelerate interest rate cuts with a weaker job market and inflation risks will shape markets this year.
Disruption persists
Geopolitical volatility seems likely to be a reality for the foreseeable future, especially with Trump showing a growing willingness to use military force against rivals such as Venezuela and Iran. However, as in previous years, we do not expect the turbulence to impact markets unless commodities markets (especially oil) or global manufacturing supply chains are disrupted.
It is worth noting that emerging markets remain vulnerable to risk-off if, for example, the Fed decides to tighten policy or should the conflicts in Ukraine and the Middle East spill over. The JSE and the South African rand, especially, remain susceptible to a change in global appetite for risk assets as well as to local political risks and underwhelming economic performance.
It is in this context that Dynasty maintains our conviction that offshore equities remain the primary driver of long-term capital accumulation. The broader opportunity set available offshore, together with ongoing domestic economic concerns, means that we expect superior returns from developed markets and potentially from other emerging markets over the longer term.
In line with our research, we completed the extensive repositioning of our house-view global equity portfolios in the last quarter of 2025. Going forward, we will continue to focus on a well-diversified approach that dynamically balances opportunities for our investors with longer-term risks in this ‘new world order’ of frequent disruption.
