Written by Ashwin Gurung
Japanese equities gained over the week after Sanae Takaichi won the Liberal Democratic Party (LDP) leadership election, with the MSCI Japan Index up +2.8% in local currency terms as investors reacted positively to her likely appointment as Japan’s next prime minister and her plans to support the economy through increased government spending, tax cuts, and subsidies. The Japanese yen, meanwhile, weakened -1.6% over the week vs GBP, this offset most of the local currency gain for GBP-based investors, resulting in a modest return of +0.7% for the MSCI Japan index.
However, further uncertainty emerged after markets closed on Friday, when the LDP’s long-standing coalition partner announced they were leaving the coalition, citing policy disagreements and concerns over a previous funding scandal. This has created short-term political uncertainty and prompted speculation about a possible snap election. While we stay abreast of market developments, we do not base our investment decisions on political outcomes. We believe that the ongoing corporate governance reforms and resilient consumer demand in Japan continue to support our positive long-term view.
In the US, equities were weighed down by renewed concerns over trade tensions with China and the ongoing government shutdown. Investors became more cautious after President Trump suggested the possibility of additional tariffs of 100% on Chinese products in response to China’s new export controls on rare earths, which are key materials used in electronics and clean energy, adding to existing geopolitical uncertainty. This increased volatility in US and Chinese equities, and drove demand for safe-haven assets like US Treasuries and gold. The S&P 500 and MSCI China indices fell -1.2% and 2.1%, respectively, over the week, but our long-dated US Treasury exposure performed well, returning +1.4% and providing effective diversification for our portfolios.
Across Europe, political turmoil in France and ongoing trade tensions weighed on market sentiment towards the end of the week. A drop in German industrial output also raised recession worries, with the MSCI Europe ex-UK index falling -1.4%. Meanwhile in the UK, housing markets slowed in September, with prices and buyer demand remaining soft. Higher borrowing costs, ongoing inflation, and worries about possible tax rises ahead of the November budget all contributed to the weaker sentiment.
This year continues to highlight the importance of a well-diversified portfolio amid ongoing uncertainty, not just across different geographies but also across a range of asset classes and investment styles. We remain aware of market developments but remain focused on our long-term view.
All performance figures are stated in Sterling terms, unless otherwise specified.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 13th October 2025.
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