Global equity markets began 2025 on the front foot, with the laggards of 2024 surprisingly taking the lead. European and Emerging equity indices added approximately +8% in January, outperforming their US peers by more than 4%. However, the solid gains recorded by equity markets in January should not be considered a continuation of the Trump 2.0 rally. In fact, the US exceptionalism has been unexpectedly challenged by several factors in the past few weeks as cracks have emerged in the strong narrative supporting US equities. The main one was the release of two new LLMs by the Chinese startup DeepSeek, demonstrating comparable results to the models developed by the US big tech firms, but operating at substantially lower costs. The implication of this “sputnik moment” is not just lower levels of overall capex spend in AI infrastructure (which will lead to faster and broader AI adoption), but it is also a serious setback for the US in their attempt to preserve their monopoly in the development of this new, transformative technology. With US stocks already expensive and well-owned, their exceptionalism may have peaked in January. The portfolio rebalancing towards much cheaper geographical equity markets should continue, leading to higher volatility in the coming months. In addition, the outlook of a significant reduction in US government spending, and a labour market which will be under increasing pressure from new US anti-immigration measures, does not bode well for GDP and inflation forecasts in 2025. Moreover, Trump’s latest decision to impose tariffs on Canada, Mexico and China imports was followed by counter-tariffs announced by these countries. The duration of these new trade policies will be key to assess their negative impact on GDP. The Fed has rightly decided to postpone new rate cuts at its FOMC meeting, withdrawing another major support to US equities.

The Fund was up +0.7% (A, USD) in January, slightly ahead of its annual objective. The strong performance recorded by equity markets in January meant the portfolio turnover was high, particularly in the latter half of the month. A decrease in volatility levels led to less favorable reinvestment conditions, and a larger than usual cash position to the end the month. The remainder of the cash will be reinvested early February. As of 31/01, the Fund’s running yield was at +8.9% p.a. (USD, gross), with a healthy +19.7% downside protection of the income notes allocation and 4.6-month average maturity.