Monthly Review - February 2025
- 04 March 2025 (5 min read)
In brief
The markets
-1.4%
2.0%
6.0%
3.3%
3.8%
7.9%
1.6%
2.2%
-3.8%
Source: Bloomberg 28.02.2025, returns in local currency
Top stories
Asian tigers roar
Asia's homegrown tech giants, known as the 'Terrific Ten', challenged the Magnificent Seven for stock market performance. In Hong Kong, the Hang Seng index soared by almost 20% (YTD), scorching ahead of the Nasdaq. The launch of China's AI platform, DeepSeek, was the initial trigger for the rally. Momentum then gathered as Tencent, China's multimedia giant, switched to DeepSeek AI technology, dropping the development of an in-house version. And further impetus came when Apple signed a deal to integrate e-commerce tech giant Alibaba's AI into all the iPhones sold in China.
Fed talks
US Federal Reserve (Fed) interest rate policy is now firmly on hold, with the Fed requiring "further progress on inflation" before more cuts. Fed governors pointed to the possible inflationary impact of trade tariffs and immigration policy. This caused some economists to forecast US rates staying higher forever, despite slowing growth indicators. Undeterred, the European Central Bank is expected to cut again in March, while the Bank of Japan looks set for further rate hikes on stronger growth and inflation data. Meanwhile, central bank buying pushed gold to successive highs, reflecting broad uncertainty over the direction of US government policy.
Action on AI
President Macron summoned world leaders and global tech CEOs to Paris for an Artificial Intelligence (AI) Action Summit. The discussion covered matters of concern, such as AI's impact on democracy and the environment, as well as information manipulation and cybersecurity. The president promised more than €100 billion to fund AI development in France. Disappointingly, the US was not a signatory to the final agreement. Meanwhile, Elon Musk launched a $97.4 billion bid for OpenAI, the creator of ChatGPT. Founder Sam Altman rejected the offer, suggesting the he should buy X (formerly Twitter) from Musk instead.
Setback for stewardship
In the US, new Securities Exchange Commission (SEC) guidance has imposed stricter requirements on asset managers seeking to influence corporate behaviour through proxy voting or direct engagement - a customary form of corporate governance. The SEC move is part of a wider aim to rein in the power of the largest asset managers. The updated guidance briefly caused passive investing behemoths BlackRock and Vanguard to cancel meetings as they paused their stewardship activity. In a further blow to ESG investing, the SEC reversed a 2021 decision allowing investors to propose more ambitious environmental and social resolutions at companies' AGMs.
On the radar
European stocks have outperformed their US counterparts since President Trump's inauguration, buoyed by hopes of an end to the war in Ukraine and by the absence, to date, of higher US tariffs. Despite an improving economic backdrop, continued outperformance could largely hinge on external factors such as these.
Germany's Christian Democrats face an uncomfortable coalition with the outgoing Social Democrats, given their differing views on tax, regulation and social spending. The need to address Germany's 'debt brake', to allow for higher defence spending, might be addressed even before a new government can be formed in late March.
Sentiment surveys in the US will be closely watched, after the February S&P Global Services survey contracted for the first time in two years. Meanwhile, the University of Michigan's February consumer sentiment index tumbled to a 15 month low, indicating that the threat of higher prices could be about to hit US consumers.