Monday Digest
Posted 27 October 2025
Autumn but no fall
Markets ended last week with all-time highs, but investors remain uneasily positive. We have noticed a disconnect between people’s pessimism and recently strong investment returns. With global inflation coming down business confidence better than expected, the outlook is still strong.
The ‘better-than-it-seems’ narrative is particularly true of the UK: UK stocks and bonds outperformed last week, after lower-than-expected inflation increased the chance of an interest rate cut in December.
The Federal Reserve looks set to cut rates this week – probably 0.25 percentage points (but it could be more, not less). The Fed will be dovish, and this expectation has helped bond yields all over the world, as has a slowing of US economic data (influenced by the government shutdown). Treasury yields falling below 4% has helped balance out the stock market wobble. That’s also why markets aren’t too concerned about credit stress (covered below).
Gold prices fell sharply as traders seemed to take profits from the recent blistering rally. We think there’s an interesting parallel to Chinese tech stocks: they came down after a strong run, and we know Chinese investors are heavily invested in gold. Chinese stocks have been supported by strong liquidity, but that’s tailed off slightly. Recent data showed Beijing’s economic stimulus is working, so the government may now pull back some of its market-support measures.
The Trump administration seems to be preparing for defeat in next month’s Supreme Court tariff ruling, by suggesting alternative sector-specific tariffs. This might not be the boon for markets that some think. Without tariff revenues, US bond yields will be under threat, and sector-specific tariffs could be worse for global supply chains than the current regime. It’s unclear how stocks would respond. Uncertainty is a bigger problem now than over the summer, thanks to tighter liquidity. The recent bout of volatility might not be over. But the global economy is getting a welcome boost to capex, partly in response to tariffs. That strengthens the long-term outlook.
Private markets a concern, not a crisis
Concerns about private credit are mounting, after the collapse of Tricolor and First Brands. BoE governor Andrew Bailey rang “alarm bells” about private credit standards last week, comparing them to the 2008 Global Financial Crisis (GFC).
Private markets – equity, credit and everything in between – have grown rapidly in recent decades. Private credit firms sell themselves on sell themselves on their bespoke, in-depth credit spreads. But the collapses (and reports of fraud) have worried everyone that those checks aren’t being done. As JPM’s Jamie Dimon quipped, there’s never just one cockroach. Shares in private credit firms and Business Development Corporations (BDCs, somewhere between credit and equity) have been hit hard.
Andrew Bailey’s warning came after similar decrees from the IMF. Private credit now takes up a huge portion of overall lending and its standards are opaque. Many have long speculated that post-GFC regulations have just shifted leverage from public to private markets. And with so many private credit firms running checks, it’s easier for individual firms to copy others’ homework. High fees from individual deals make this problem worse: just like before the GFC, arrangers (themselves lenders) make so much commission from completing the deal they stop worrying about whether borrowers can pay.
That’s not to say another GFC is coming – far from it. We expect problems to be contained, largely because private credit’s expansion hasn’t been driven by private money creation. We do expect a credit crunch, as private lenders get pickier and start running the checks they should have done all along. Private market firms might struggle for investment capital too; we’ve noticed some reaching out to institutional investors like ourselves, rather than relying on traditional sources (families, sovereign wealth and pensions). But unlike in 2008, money will remain in the system. Expect a wobble, not a collapse.
What Britain can learn from Korean markets
South Korean stocks are up an astonishing 70% since April. That would’ve been unthinkable a year ago, when former president Yoon Suk Yeol attempted to return Korea to a dictatorship. Despite his quick impeachment, it wasn’t until June that Korea had a stable new government. Foreign investors dumped Korean stocks en masse after Donald Trump’s ‘Liberation Day’ tariffs, but it has since become “the leading emerging-market rally”, according to Franklin Templeton. Much of that is focussed on chipmakers like Samsung and SK Hynix, benefitting from the AI theme. Korean tech stocks still have relatively low valuations, though, suggesting the rally could run.
It’s not all about chips; the rally has broadened after an IMF growth upgrade and signs of a US-Korea trade deal. The government’s reform push has helped greatly – including corporate governance (similar to the story that has boosted Japan) and its capital markets framework. Seoul wants to get encourage retail investors into the domestic stock market. This should create a virtuous cycle: the savings pool moves into equity, which improves corporate finances, which in turn makes Korean companies more attractive to global investors.
The UK is trying to do something similar, to address our market’s liquidity problems (which is why so many British companies are listing in New York). Whitehall recently announced a stamp duty holiday for new UK stock listings – though a stamp duty removal (like other nations) would bring more liquidity. The Treasury also floated a cash ISA limit proposal, though that is more stick than carrot. Britain has attractive companies (evidenced by the FTSE 100’s outperformance), we just need reforms to bring more liquidity. Korea’s experience reminds us how beneficial that can be.