Market Movers in 2025:
Market Drivers for 2026:
Key Risks:
Outlook for 2026
Unprecedented investments in tech, AI, resources, and defense, supported by easier central bank policies, pro-growth measures, and accelerating AI monetization, should drive returns and sustain positive global market momentum.
SystematicEdge has developed a series of investment strategies that give investors a diversified, cost-efficient exposure to Equity, Fixed Income, Commodities, and Crypto. Our strategies are based on three pillars:
The 2025 performance for our flag-ship strategies is shown in the table and chart below.
Despite geopolitical turbulence, 2025 closed with a third consecutive year of double-digit equity gains, alongside solid returns in gold and fixed income. We remain constructive on global markets in 2026 as rates ease, growth stays resilient, and investment accelerates across AI, technology, energy, and defense. However, following the U.S. intervention in Venezuela, heightened geopolitical risk and U.S. market concentration strengthen the case for broader diversification. We expect rotation away from a U.S.-centric allocation toward Europe and Asia as global growth becomes more balanced across the three major regions. We also expect the U.S. dollar to weaken in 2026 as the Fed cuts rates, U.S. policy favours a more competitive dollar, and gradual de-dollarisation trends persist.
In the U.S.: AI-led growth at 2.3%, likely Fed cuts and rising geopolitical volatility
We start the year optimistic on global growth, with activity picking up and inflation easing. In the U.S., a first-quarter Fed cut looks likely as a soft labor market and moderating inflation, helped by favorable tariff base effects, falling shelter inflation, and slowing wage growth, create room to cut rates. AI may also be quietly weighing on hiring, with early weakness in sectors most exposed to AI such as software, customer service, and marketing. Fiscal support (“One Big Beautiful Bill”) should add to near-term momentum through tax refunds and higher spending for defense and industrial infrastructure. The main swing factor is volatility: trade politics dominated last year, while 2026 risks are more geopolitical.
In Europe: Growth recovery at 1.4%, easing inflation below 2%, and a steady ECB rate at 2%
Eurozone growth is expected to stay above 1% in 2026, underpinned by a supportive policy mix in Germany and a stabilising manufacturing sector, with GDP growth around 1.1%. Labor markets, consumer savings, low corporate leverage, and clearer trade prospects underpin further growth. Inflation is projected to be below 2% through 2026, helped by lower energy prices, a stronger euro, moderating wage growth, and productivity gains. The European Central Bank (ECB) is likely to keep rates near 2%, with risks tilted towards further cuts.
In China: Sustained growth at 4.8% with no inflation and pro-tech policy
Growth eased in Q4 2025 after a stronger-than-expected first three quarters, and we expect a gradual slowdown to around 4.8% YoY in 2026. Retail sales should stabilise near 4% YoY, investment growth may recover to low single digits, and exports are expected to remain resilient at roughly 3% YoY. U.S.-China relations and tariffs may stay broadly stable in 2026 following the late-October Xi-Trump meeting, while China continues to push tech innovation and supply-chain competitiveness. Policy should remain supportive, monetary easing is likely to continue, and fiscal policy should stay proactive, while CPI (Consumer Price Index) may rise modestly from near-zero levels and PPI (Producer Price Index) should become less negative as measures to curb oversupply take effect.
2025 ended with broad-based gains, with global equities up 27% and gold up 65%, marking a very strong year for multi-asset investors. Global stocks posted a third consecutive year of gains above 20%, while bond investors enjoyed their strongest returns in five years. In tech, earnings continue to signal robust AI chip demand, but markets are increasingly favouring firms that can show clear monetisation rather than simply higher capex. We remain constructive on AI and equities with a tilt to the application layer. In addition, we favor high-quality financial bonds and maintain a negative view on USD/RMB. Investors may also consider adding a tactical commodities exposure via our Geopolitical Risk Mitigation (GRM) strategy. Despite ongoing risks, including the recent developments in Venezuela, we remain focused on building precise, efficient portfolios to help investors navigate 2026 with confidence and purpose.
Equity: U.S. equities ended December slightly lower, with S&P 500 down 0.1% MTD (+16.4% YTD) and Nasdaq 100 down 0.7% MTD (+20.2% YTD), while Euro Stoxx 50 rose 2.2% MTD (+18.3% YTD). In Asia, Korea’s Kospi 200 was the best performer (+9.4% MTD), closing the year with a remarkable 90.7% YTD gain, while China’s HSCEI lost 2.4% MTD despite a strong YTD performance (+22.3%).
Fixed Income: 10-year yields edged higher MTD: U.S. Treasuries 4.17% (+15 bps MTD, -40 bps YTD) and German Bunds 2.86% (+17 bps MTD, +48 bps YTD). China 10-year 1.86% (+1 bp MTD, +16 bps YTD), remaining structurally lower than the U.S. and Germany.
Currencies: The dollar weakened versus the euro and Aussie: EUR/USD 1.1750 (+1.3% MTD, +12.9% YTD) and AUD/USD 0.6674 (+1.9% MTD, +7.3% YTD). Moves were muted elsewhere: USD/JPY 156.67 (+0.3% MTD, -0.1% YTD) while USD/CNY 6.9769 fell 1.3% MTD and 4.6% YTD.
Commodities: Energy lagged while metals surged: WTI oil $57.42 / bbl (-1.9% MTD, -19.9% YTD) versus gold $4,326/oz (+2.5% MTD, +64.5% YTD). Copper $12,412/ton jumped 8.6% MTD and +41.2% YTD, reflecting strong demand expectations.
Crypto: We note cryptocurrencies ended both the month and the year weaker, with Bitcoin at USD 87,549 (-4.0% MTD; -6.3% YTD), Ether at USD 2,978 (-2.0% MTD; -11.0% YTD), and Solana at USD 124.21 (-9.7% MTD; -35.5% YTD).
Global diversified equities returned 27% in 2025, which is reflected in the performance of our Systematic Equity Portfolio (SEP). We see a positive outlook for global equities in 2026. The backdrop remains supportive: rates are easing, growth is proving resilient, and investment is accelerating across AI, technology, energy, and defense, so the momentum from 2025 will likely carry on. Nonetheless, geopolitical and concentration risks argue for broader diversification. We expect rotation to continue away from a U.S.-centric allocation toward Europe and Asia, reflecting a more balanced contribution to global growth from the 3 main economic regions. In 2026, we believe it is key to capture the broad upside while reducing single-region and single-sector exposures through diversified regional and sector positioning.
In the U.S.: S&P 500 (+16.4% YTD), supportive macro, AI monetisation tailwinds
We remain constructive on U.S. equities in 2026, supported by resilient growth and profits, further Fed rate cuts, and continued AI investment shifting toward monetisation. Recent performance is consistent with the historical pattern that, when the Fed is not hiking rates, equity returns broadly track rising consensus earnings expectations. We expect around 10% profit growth in 2026 and view the risk of renewed Fed rate hikes as low, which keeps the backdrop supportive. The key risks are a profits disappointment, a tariff-driven inflation scare that revives rate hike fears, and over-investment in AI infrastructure.
In Europe: Euro Stoxx 50 (+18.3% YTD), earnings acceleration, reasonable valuations
After three years of flat earnings, we see Europe’s cycle turning, with profit growth projected to accelerate to 6% in 2026 and 10% in 2027 as confidence improves, trade clarity increases, and global policy support remains in place. Europe’s structural story is also improving, with healthier regional banks, stronger prospects for global capex, and increasing political focus on competitiveness, while valuations remain reasonable versus global peers.
In China: Solid earnings outlook and ongoing AI-driven support
Hong Kong equities ended 2025 strongly, with the Hang Seng Index (HSI) up 27.8% YTD, and momentum carried into 2026 as the HSI rose about 3% and Hang Seng Tech about 4% on the first trading day. The move is being driven by three themes. First, investors are gaining confidence that China is accelerating toward a 100% self-sufficient semiconductor and digital ecosystem, chips, software, and cloud, aligned with the national objective for technological autonomy. Second, Hong Kong’s IPO market was number 1 in the world in 2025, led by tech and AI, and the pipeline looks great again for 2026. Third, the macro backdrop is constructive: low domestic rates and clear pro-growth, pro-tech policies.
In 2025, FX markets have been driven by trade tensions, geopolitical conflicts, growth differentials, and shifting central bank policies, a backdrop we expect to persist into 2026. Monetary policy divergence remains key: the ECB and SNB have almost completed their easing cycles, while the Fed, BoE, and RBA are expected to keep cutting rates into 2026. Against this backdrop, we expect the USD to move lower, particularly versus Asian currencies, while the Bank of Japan (BoJ) stands out as a likely outlier with further rate hikes.
EURUSD close to 4-year high at 1.17, up 12% in 2025
Recent macro data and central bank messaging have supported EUR/USD, which continues to trade with strong upward momentum and has been only marginally affected by the Venezuela headlines. The pair could approach 1.20 if U.S. data soften further and the Fed continues to ease, although European political uncertainty—particularly in France—may cap the upside. Key downside risks include stronger U.S. growth, a less dovish Fed, sustained demand for unhedged U.S. equities, or renewed political stress in Europe. Conversely, deeper Fed easing, persistent U.S. twin deficits, easing French political risk, and stronger euro-area growth supported by fiscal policy could lift EUR/USD through 1.20.
USDRMB breaks below 7.00, further downside risk in 2026 as U.S.-China fundamentals diverge
Since Trump’s tariffs “Liberation Day” on 2 April 2025, the People’s Bank of China (PBoC) has allowed USD/RMB to grind lower by roughly 0.5% per month amid China’s ~USD 100bn monthly trade surplus, taking the pair down about 5% from 7.35 to 6.97. We expect the dollar to keep adjusting lower as the Fed continues to cut rates. Structurally, the U.S. runs a persistent trade deficit while China runs a large surplus, which should weigh on the dollar over time. We view this as the start of a longer move and expect USD/RMB to trend toward 6.30 over time, consistent with the trade and growth gap between the two economies.
USDJPY rebounded to 156 (flat in 2025), downside potential to 140 as BoJ hikes rates
Bank of Japan’s Governor Ueda is leaning hawkish because Japan’s inflation is still running around 3%, above BOJ’s 2% target, and the weak yen is lifting import costs, adding to price pressure and therefore importing inflation. Last month, the BOJ raised the policy rate from 0.50% to 0.75% (a 30-year high), yet USD/JPY has remained near 157 (a 40-year high). In 2026, the key will be policy divergence: if the U.S. Fed cuts rates while the BoJ keeps hiking rates gradually, USDJPY will adjust lower, potentially toward the 140 area (10% below current spot) and most likely with elevated currency volatility.
Bonds delivered positive returns despite range-bound rates, led by carry/yield. Long duration and non-USD markets were softer as long-end yields rose on higher term premia (Europe, Australia, Canada).
In the U.S., signs of labor cooling revived rate-cut expectations; the base case has continued easing toward ~3% in 2026.
The ECB kept the deposit rate unchanged at 2%. Slightly better sentiment, helped by trade optimism, potential German fiscal support, and ceasefire hopes, has pushed markets to drop near-term rate cut pricing.
The financial bond asset class provides a strong risk-return profile, especially if growth weakens and rate cuts carry on. Bank bonds are an appealing cash alternative, offering yields above 4% in USD and 3% in EUR.
Gold: Up 65% YTD, making it the best-performing asset in 2025, positive outlook in 2026
Gold has reached new record highs, driven by demand for real assets as the U.S. dollar weakened and geopolitical tensions intensified with the U.S. intervention in Venezuela.
We see further upside in 2026, which would be driven by a combination of:
If these drivers persist, we may see a further 10%-to-15% move, and gold could reach USD 5,000/oz in 2026.
Oil: Down 20% YTD to USD 57/bbl; OPEC+ pauses increases; Venezuela shock raises supply risk
Eight OPEC+ members reaffirmed they will pause planned production increases during Q1 2026 after their Jan 4 meeting. On Jan 3, the U.S. operation in Venezuela increased geopolitical uncertainty. Venezuela’s near-term oil output outlook is therefore skewed to the downside, and any meaningful recovery would likely take time given operational and political disruption. We expect oil prices to remain range-bound as events unfold, amid elevated market volatility.
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