Reviewing the year of 2025
The year 2025 will likely be remembered as a period of seismic change in the global order. The United States, long regarded as the guarantor of global security, has stepped back from several of its traditional commitments, while the tariff measures introduced by President Trump have materially altered the dynamics of the global economy. Many economic norms established over the past two decades have been disrupted, necessitating new assumptions and revised frameworks for forecasting economic and market trends.
Against this backdrop, portfolio performance was resilient. The Cash portfolio rose by 9.34%, while the SRS portfolio gained 10.23%. Notably, this performance was broadly in line with the S&P 500, despite the portfolios being balanced in nature with allocations to both equities and bonds.
The CPFIS portfolio underperformed, primarily due to the weak performance of the CPFIS US allocation, namely the Franklin US Opportunities Fund, which delivered a return of 0.77% in 2025 compared with the S&P 500’s approximately 10% gain. One of the fund’s key strengths has historically been its overweight exposure to the technology sector, a relative advantage within the CPFIS framework where technology-focused options are limited. While the fund has performed well during earlier phases of the AI-driven rally, its recent underperformance has placed it on a watchlist for potential replacement. Performance was also constrained by structural limitations within the CPFIS platform, as some of the most profitable exposures in the Cash and SRS portfolios, particularly gold and financials, are not available under CPFIS.
The decision to reduce overall risk by adjusting the asset allocation to 70% equities and 30% bonds, from 80% equities and 20% bonds at the start of 2025, proved prudent. This repositioning helped cushion the portfolios against the sharp market correction triggered by the tariff escalation, during which US equity markets declined by approximately 15% within days of the announcement.
I also implemented a series of portfolio switches to realign allocations with a rapidly evolving global economic order, as many long-held assumptions were rendered obsolete and adjustments were necessary to adapt to the new environment. Long-term readers will note that the number of portfolio adjustments made this year was roughly three times higher than in previous years, underscoring the scale and pace of change following President Trump’s return to power.
One of the more controversial decisions was the switch from Technology fund to Finance stock in February. This move proved timely, with the financials allocation delivering a strong 25% return within six months. and after a great run of 25% return within 6 months. The position was subsequently rotated into Previous metals in September, which generated an additional 30% return through December. Had we remained invested in the technology fund throughout the year, the position would have returned only 16% on a year-on-year basis, compared with the cumulative 78% return achieved through these strategic reallocations.
The decision to switch from a broad emerging markets fund to a China-focused fund in March also contributed positively to portfolio performance. Since June, the China fund has outperformed the emerging markets fund by approximately 15%, and remaining in the broader emerging markets allocation would have resulted in a meaningful opportunity cost.
That said, there were two key drags on overall portfolio performance.
The first was Indian equities. India was initially positioned as a relatively “Trump-resilient” allocation in January, based on the assumption that it would avoid tariff measures due to its favourable trade relationship with the United States, the strong personal rapport between Presidents Trump and Modi, and rising US corporate interest driven by the diversification of manufacturing away from China. However, this thesis was disrupted when India was unexpectedly hit with a 50% tariff, currently the highest tariff level globally and even exceeding that imposed on China.
Encouragingly, recent developments suggest that trade negotiations between India and the United States may be resolved in the near term, which could provide a meaningful catalyst for Indian equities. In addition, following the strong rally in regional peers, Indian equity valuations now appear relatively attractive heading into 2026, positioning the market for a potential rebound should trade tensions ease.
The second drag on portfolio performance came from the Allianz US Short Duration High Income Bond fund, which underperformed the benchmark following a credit event. Three issuers—New Fortress Energy, Saks Global, and Sunnova Energy—defaulted on their debt, resulting in a -5.89% loss for 2025, compared with a +5% return delivered by other US high-yield bond funds. Despite this setback, I have chosen to retain the position. Historically, the fund tends to recover over time, and selling hastily after a credit event often results in suboptimal outcomes.
One notable opportunity that was missed, however, was Korea, which delivered an extraordinary +85% in 2025. In 2024, Korea had been one of the weakest markets, declining -24.5%. The dramatic turnaround was driven by the memory chip sector.
Following the pandemic, a collapse in demand left companies with excess RAM inventories, creating a glut that depressed prices and caused significant losses for major players such as Samsung and SK Hynix. By 2026, surging AI-driven demand for advanced memory in data centers created a severe supply shortage. This shift pushed memory prices sharply higher, fueling Korea’s remarkable market rebound.
Whether the memory chip story will sustain Korea’s equity rally into 2026 remains uncertain. The recent surge may partly reflect a knee-jerk reaction to a temporary supply shortage triggered by a sudden spike in demand. The key question is whether this elevated demand will persist, which will be critical in determining the medium-term trajectory of Korean equities.
Meanwhile, as valuations in major equity markets approach the upper end of their historical ranges, caution is warranted. While the AI revolution is expected to support market growth over the next decade, markets remain vulnerable to sharp corrections, particularly as global production ramps up to address shortages across all types of computer chips. Investors will need to balance the long-term structural growth story against the risk of near-term volatility in technology-driven sectors.
Investment Outlook and Themes for 2025
United States - The Trump Effect
After eight months of heightened policy unpredictability under the Trump administration, we expect the “America First” agenda to remain firmly in place leading up to the US mid-term elections in November 2026. These elections will be pivotal in determining whether the Republican Party retains control of Congress. A Democratic victory would significantly constrain President Trump’s ability to advance his policy agenda, effectively rendering him a lame-duck president as congressional opposition intensifies.
In the interim, President Trump is likely to use all available policy levers to preserve Republican control of Congress. This includes a strong emphasis on containing inflation and supporting equity market performance, allowing the administration to project economic competence and policy effectiveness to voters.
Another key development to monitor is the eventual replacement of US Federal Reserve Chairman Jerome Powell. It is widely expected that President Trump would appoint a more dovish successor, one inclined to maintain a lower interest rate environment. Such a shift would aim to support economic growth, stabilize financial markets, and reinforce the administration’s broader economic objectives.
Europe - The End of Ukraine War?
After four years of conflict, there are emerging signs of progress toward a ceasefire in the Russia–Ukraine war, with all parties showing greater willingness to engage in diplomatic negotiations. Should a ceasefire materialize, it would provide a meaningful boost to European economies and could lead to a gradual easing of global sanctions on Russia, particularly if such measures form part of a negotiated settlement as suggested by President Trump.
That said, deep-seated distrust toward Russia remains. Even in the event of a ceasefire, it is likely to take several years before trade relations between Russia and Western Europe normalize, as European nations continue to strengthen their military capabilities to deter any future aggression.
Beyond the geopolitical landscape, Europe’s major economies—namely the United Kingdom, France, and Germany—continue to face significant structural challenges. Addressing these issues will be critical if the region is to improve long-term competitiveness and sustain economic growth.
Asia - Will China's Stagnation Continue?
China's economy is continuing to grapple with several challenges, including slowing growth, deflation, and a weakening currency. There has been slight improvement since 2024, but the continual decline in property prices is maintaining its drag on China's domestic consumption. On the bright side, China's exports have grown even with the pressure of the high US tariffs with more of its goods sold to non-US economies.
Other Asia markets had a good run in 2025 but valuation of countries such as Korea and Japan has become expensive and may be prone to big corrections.
With valuations in both Korea and Japan elevated after a strong run-up in prices, their equity markets are increasingly vulnerable to meaningful corrections. While the underlying investment narratives remain intact, supported by the semiconductor upcycle and memory-chip shortages in Korea, as well as the ongoing structural transformation of the Japanese economy, it may be more prudent to wait for a sustained market pullback before increasing exposure to these two markets.
At present, India and China offer the most compelling combination of growth potential and valuation support. Both markets trade at relatively reasonable valuations while being underpinned by strong structural growth narratives. China’s recovery from its property downturn, coupled with its rising technological capabilities, positions it to participate meaningfully in the AI-driven growth cycle. India, meanwhile, continues to benefit from a rapidly expanding middle class, the reshoring of manufacturing away from China, and the potential resolution of trade frictions with the United States.
In Southeast Asia, major markets such as Indonesia, Thailand, and Vietnam still face political and structural challenges that may limit near-term investor enthusiasm. Although valuations across these markets are attractive, they are not currently central to the AI investment theme dominating global capital flows, which may constrain the realization of their upside potential. Vietnam, however, stands out as a market to watch, particularly as it continues to benefit from the relocation of manufacturing capacity from China.
Singapore’s equity market, in contrast, is expected to continue serving as a safe harbour amid a volatile and uncertain macroeconomic backdrop. Investors seeking stability and exposure to the Singapore dollar are likely to maintain allocations to Singapore assets.
Gold: Will it continue to shine?
Gold will have a strong potential to continue its price appreciation in 2026. I have wrote a lengthy article explaining the structural change to Gold and why it will appreciate near future. The key drivers behind the rise in gold prices remain firmly in place. Central banks continue to diversify reserves away from the US dollar, while retail participation has increased as broader investor awareness of gold’s role as a hedge grows. In addition, expectations of US interest rate cuts in 2026 are likely to exert further downward pressure on the USD, providing continued support for gold prices.
That said, with gold trading at record highs, the asset remains vulnerable to sharp corrections, given its historically volatile nature. While gains may be less pronounced than those seen in 2025, underlying macroeconomic factors should continue to support structural demand and sustain gold prices over the medium term.
Portfolio Investment Strategy for 2026
With market valuations at elevated levels, I believe that corrections are inevitable. However, such pullbacks should be viewed as opportunities rather than risks, providing attractive entry points to buy into high-quality assets at more reasonable prices.
I continue to expect the US economy to remain resilient and to play a central role in driving global growth in 2026. That said, the pivot toward an “America First” policy framework has fundamentally challenged the long-held belief that investing in the S&P 500 is always the optimal strategy. Increasing policy unpredictability and tariff-driven disruptions have accelerated the case for diversification away from US equities. This shift has been reflected in the outperformance of Asian and European markets, prompting many fund houses and retail investors to look beyond the United States for investment opportunities.
Nevertheless, a core allocation to the S&P 500 will be maintained. The reality is that the AI revolution continues to be led by the “Magnificent 7,” whose outsized influence remains a key driver of US equity performance. Participating in this long-term structural trend necessitates sustained exposure to the S&P 500. However, as investors increasingly diversify away from the US dollar, capital is likely to flow further down the AI supply chain. This should benefit technology-related sectors and companies in Europe and Asia, where we intend to gradually increase exposure as the concentration of returns in the Magnificent 7 begins to broaden.
I will continue to maintain the gold position until there is a clear shift in the underlying structural narrative. The current rally is supported by sustained central bank purchases and ongoing diversification away from US dollar reserves. A meaningful tapering and correction in gold prices is likely only when central banks reduce their gold accumulation and signal a willingness to maintain US dollar reserves at baseline levels. This is a key trend that will be closely monitored going forward.
India and China remain core positions within the portfolio. Both markets are currently trading at fair valuations while offering substantial upside potential driven by strong structural growth narratives. Other areas that could benefit from this stage of the economic cycle include Singapore, healthcare, and Vietnam. Meanwhile, Thailand and Indonesia may emerge as potential dark horses in 2026. Although valuations are attractive, a sustained rally will likely require a strong catalyst. Absent such a trigger, it remains more prudent to focus on markets with clearer growth drivers and established momentum rather than allocating prematurely to undervalued regions where potential may remain unrealized.
From an asset allocation perspective, I am prepared to increase equity exposure to 60–70% in the event of a moderate market correction, and to adopt a more aggressive stance should a major global recession occur. Conversely, if the current environment of moderate global growth persists and valuations continue to stretch further into expensive territory, a more conservative posture will be adopted later in the year. In the interim, sacrificing some upside in favour of capital preservation through bonds is a prudent trade-off. Ultimately, the best investors are not those who generate the highest returns during favourable periods, but those who successfully protect their capital during periods of stress.
No comments:
Post a Comment