The first quarter of 2025 was marked by political and economic upheavals which noticeably affected global capital markets. Following the strong stock market performance in 2024, all eyes turned to the first actions taken by the new US administration under Donald Trump. Markets in the US reacted with significant uncertainty following Elon Musk’s appointment to a government efficiency panel and news of upcoming import tariffs. The reversal of key Biden initiatives further intensified this trend. Meanwhile, the release of the Chinese AI “DeepSeek” caused a stir. For the first time, the US’ leading position in artificial intelligence was seriously threatened by impressive performance at much lower costs, raising concerns for US investments. Europe, in contrast, appeared more stable. By cutting rates by 0.25 percentage points twice, the ECB helped bolster the economy, and together with a generous fiscal policy, it fostered a positive market climate. This capital shift, driven by geopolitical factors, had a significant impact on stock markets.
Stock markets were somewhat unstable during the first quarter of 2025. Following the Republicans’ victory in November 2024, the early optimism, dubbed “Trump Trades,” was quickly replaced by a palpable sense of disillusionment. Investors increasingly took profits and resumed valuing companies based more heavily on fundamental data and traditional metrics. The mood in the US was one of caution, whereas Europe felt a renewed sense of drive. European companies, long overshadowed by their American counterparts, were able to make up significant ground. Indices such as the DAX and SMI repeatedly reached new all-time highs, benefiting not only from more expansionary monetary policy but also from a shifting capital flow towards more solid valuations.
Tailwinds for the bond markets: In our opinion, the future for bonds looks highly attractive. With higher starting yields across the entire maturity spectrum, bonds offer stable ongoing income, protection in times of volatility, and the potential for price gains if interest rates are cut further. In our opinion, the return of positive real interest rates signals the start of a more favorable environment for fixed-income securities.
Fund performance: The LiLux Convert fund recorded a slightly negative performance of -0.09 % in the first quarter. A positive highlight was the successful sale of the convertible bond from Schneider Electric SE, which yielded a price gain of approximately +11 %.
