Global equity markets had a strong performance in 2025, with international and emerging market outperforming relative to USA. The artificial intelligence (AI) theme remained a key driver; precious metals soared; and monetary policy shifts provided a supportive backdrop for risk assets. With a December gain of more than 1%, the MSCI All Country World Equity index pushed its annual return to almost 23% (in USD) – its best year since 2019. For the first time in many years, international stocks and emerging markets outperformed U.S. equities, reversing more than a decade and a half of U.S. dominance. The US dollar weakened again in the last calendar month, and was a significant booster to international returns throughout the year. Indeed, the American market posted positive returns but lagged global peers. In 2025 the S&P500 index delivered a third consecutive year of double-digit returns. Investor enthusiasm around AI continued to support technology stocks, particularly the "Magnificent Seven," which contributed 42% of the S&P500’s total annual return and, at year end, represented over two-fifths of the index’s market capitalization. American economic fundamentals remained robust, with GDP growth quite strong in Q3 (over 4%) and inflation at 2.8%, above the Federal Reserve’s 2% target. The Fed began cutting rates in September despite internal disagreements, as did other major central banks. Canadian equities performed outstandingly, gaining 36.5% (their best year since 2003), driven by mining stocks. European markets extended their rally, with many reaching record highs. Spain led, supported by declining inflation, while Germany’s market surged on stimulus hopes. The European Central Bank kept rates steady during the last month of the year as inflation neared 2% target levels. The U.K. lagged the region despite a rate cut in December, facing the highest inflation among G7 countries, and rising unemployment. Developed Asian markets underperformed relative to global peers. Japanese equities moved sideways in December, as the Bank of Japan raised rates to a 30-year high, propping a falling yen. Emerging markets were the global champtions though, returning over 33% for the year (in USD). Korea rebounded dramatically in 2025, finishing up nearly 100%  (in local currency), driven by retail investor activity and AI enthusiasm (for chips). China’s equity returns were modest due to a prolonged property crisis, but its tech sector was buoyed by advances in AI. In 2025, bond markets performed strongly, supported by three interest rate cuts from the Federal Reserve in the second half of the year, including one in December, as well as easing policies from other central banks. This accommodative environment, coupled with a weakening US dollar and attractive yields, led to significant gains across fixed income markets. Fiscal concerns persisted for government bonds, causing yield curves to steepen across major markets. US credit spreads, which initially widened due to concerns about regional banks’ exposure to non-bank financial institutions, later compressed with improved market sentiment. The anticipated tariff-driven inflation spike did not occur, and the Fed’s total 75 basis point rate cut in the second half of the year supported bond returns. Lower-quality bonds outperformed higher-quality bonds due to their higher yields. Overall, global bonds posted an 8.2% total return (The Bloomberg Global Aggregate Bond index in USD). Emerging market debt was the top performer among fixed income sectors,  with Latin American bonds especially benefiting from strong currency appreciation. Euro- and sterling-denominated investment grade bonds outperformed their respective government bonds.
            U.S. stocks ended 2025 with strong gains for the third consecutive year, despite a decline during the final holiday-shortened week in December. The flagship S&P500 equity index returned nearly 18% for the year, capping a three-year period with annualized returns above 17%, significantly outpacing its 10-year average – it gained 25.0% in 2024 and 26.3% in 2023. The Magnificent Seven stocks contributed considerably to the S&P500’s returns and market capitalization. Just those seven stocks contributed 42% of the S&P 500’s total return in 2025 and 55% over the latest three-year period. Nvidia broke records as the first company in human history to hit $4 trillion and then briefly $5 trillion in market value. However, while Alphabet and Nvidia stood out, others like Apple, Amazon, Meta, and Microsoft performed in line with the broader market, suggesting that AI enthusiasm may be moderating. For a third year in a row information technology and communication services were the top-performing sectors in the S&P500, as they generated total returns of 33.6% and 24.0% in 2025 – with some subsectors averaging around 40% annual returns over three years! Actually, all sectors posted positive results for 2025, even the weakest one, Real estate. Small- and mid-cap stocks lagged large-caps but still achieved double-digit returns. In the final quarter for the year, equities rallied despite a record-long government shutdown and increasing job cuts. The market remained resilient even after an April selloff triggered by tariff announcements from the Trump Administration. The absence of a typical year-end "Santa Claus" rally in December was attributed to profit-taking rather than a weakening economy. Indeed, the U.S. economy stayed robust amid political pressures on the Federal Reserve, which began lowering interest rates in September. The Fed’s continued interest rate cuts and signals of further reductions in 2026, especially if inflation decreases, were met positively by investors. The Trump’s administration’s more flexible approach to tariffs also boosted market sentiment. However, market concerns persist about high technology stock valuations and the sustainability of AI-driven gains. Meanwhile, Warren Buffett’s retirement as CEO of Berkshire Hathaway marked the end of an era; under his leadership, the company’s stock outperformed the S&P 500 by a wide margin over six decades. In 2025, US Treasury returns were modest, with the yield curve steepening as long-term yields rose and short-term yields fell. The Federal Reserve cut interest rates twice, reducing the federal funds rate to 3.5–3.75%. After the US government reopened, labor market data indicated a moderating – but not collapsing – labor demand, with the low-hire, low-fire rates enduring.  Overall, the US bond market returned 7.3% for the year, with the 10-year Treasury yield peaking at 4.80% in January, dropping below 4.00% in October, and ending the year at 4.17% (lower than the 4.57% at the end of 2024).
              European equities finished 2025 near multi-year highs. Spain led the final month’s gains, aided by falling inflation. Germany's stimulus measures boosted market optimism and returns. The pan-European Stoxx600 equity index rose almost 3% for the last month. In December the European Central Bank kept (and is expected to further keep) rates unchanged as inflation nears its 2% target, supporting continued banking sector gains. The UK lagged behind, even after another Bank of England rate cut, as inflation—still the highest in Europe—eased and unemployment climbed to a four-year high of 5.1%. An ongoing theme throughout the year were the significant currency movements—particularly the weakening of the US dollar – which meant that European stock returns for American investors were much amplified. The euro gained 13.4% and the British pound rose 7.6% against the US dollar during the year. As a result, European equities ended up being the top-performers in USA-based portfolios, but the European investors suffered severe currency losses and could not benefit from the hefty rally in American shares – S&P500's return in EUR was meager 3.9% for the year. Financials led gains due to improved lending prospects, while Healthcare and Utilities lagged. Growth and Technology stocks saw less enthusiasm because of contagious valuation concerns. Economically, the Eurozone had mixed results. Manufacturing, especially in Germany, contracted and hurt exports, but services remained strong, supporting overall business activity. Employment was stable, with robust hiring in services. Inflation pressures eased, and when the ECB held rates steady in December, it revise its real GDP growth forecast up to 1.4% for 2025. This, along with resilient labor markets and recovering bank lending, improved investor sentiment. The UK equity market performed strongly in the fourth quarter and throughout 2025, closing near record highs. The FTSE All-Share equity index rose 33% in US dollar terms for the year, marking one of its strongest performances in over a decade. This was driven by global earnings exposure of the many internationally focused companies on the island, the attractive UK valuations versus US markets, and the continued demand for dividend stocks (despite concerns about UK economic growth). The final quarter of 2025 saw notable divergence in European government bond markets. UK Gilts outperformed, buoyed by a well-received budget proposal that eased fiscal concerns and the December rate cut by the Bank of England. Actually, favorable rate-cutting conditions, including high initial yields, weakening labor market and easing wage pressures, contributed to Gilts returning 5.0% for the year (in GBP). In the Eurozone, bonds from peripheral countries such as Italy, Spain, and Greece outperformed core markets, while German yields actually rose following improved growth and inflation forecasts (which increase the chance that ECB will keep rates unchanged). Germany shifted away from its longstanding fiscal conservatism, planning increased spending on defense and infrastructure in response to external pressures and economic challenges. Markets reacted negatively and yields rose, resulting in losses for German Bunds (bond yields and bond prices move in opposite directions). French bonds faced challenges due to political instability, with three government collapses linked to failed austerity measures. This unrest led to a widening spread between French and German bonds, especially in the last quarter, blurring the traditional core-periphery distinction.
               On the eve of the adoption of the new currency in Bulgaria, the Bulgarian Stock Exchange (BSE) was boosted and saw off a very strong December. All indices on the home bourse went deeply in the green, with the flagship SOFIX rising by over 6.3% for the month (!) and ending the year with a return of almost 30% (in BGN). The wider BGBX40 equity index also ended the month (+4.7%) and the year (+18.6%) very successfully. The month passed with active trading on increased volumes (133% more than the previous month and 23% more than a year earlier), with a record turnover of over BGN 1 billion reached earlier in the year. Exciting news for domestic investors was the announcement that capital gains from transactions and dividend income on the BSE's SME Growth Market – Beam will be exempt from taxation on the same terms as those on the Exchange's regulated market. This becomes possible due to the extension of the adopted legislative texts, which come into force after 1 January 2026. Thus, among the blue chips on the exchange, the biggest gain for the month came from the share of the holding company "Doverie United Holding" AD, which jumped by more than 35%, and the weakest performer was the stock of the insurer "Eurohold Bulgaria" AD, which fell by less than 3%.

Source: Bloomberg, BSE