The end of the year is marked in many different ways. In Ecuador and some parts of India, people build and burn effigies to symbolise the destruction of past grievances and the welcome of a fresh start. In Denmark, smashing plates is said to banish bad spirits, while people jump, as is the custom in the Philippines. In Brazil, people dress in white and jump over seven waves as an offering to the sea goddess Iemanjá. In Cuba, people throw buckets of water out of the front door to wash away the past year’s negative energy.
As part of the Hogmanay, or New Year’s Eve, celebration in Scotland, the first person to enter a home after midnight should be a dark-haired man bringing symbolic gifts such as coal, shortbread and salt to ensure good luck for the residents.
As an Irishman living in Scotland, who now needs to finish this column quickly so he can go out and buy some hair dye, fuel, biscuits and condiments, it is impossible to avoid at least one rendition of Auld Lang Syne.
The question Robert Burns asks, “should old times be forgotten?”, is particularly relevant in the trading world. So which events shaped 2025, and what are we likely to be looking back on at this time next year?
(A)I Don’t Know What’s Going on Out There
When does a boom become a bubble? Ostrum observes that artificial intelligence is expected to contribute nearly half of US growth in 2025, at the cost of a marked crowding-out effect on the rest of the economy, including concentration of funding, pressure on energy costs and a general slowdown in non-technology activity.
However, BlackRock’s global chief investment strategist recently suggested that focusing on the scale of investment in artificial intelligence underestimates the chance that future revenues may justify the spending on infrastructure.
The heavy power demands of artificial intelligence have also pushed money into energy generation, distribution, storage technology and infrastructure. Hyperscalers are forecast to spend around $600 billion on capital projects next year, and companies that can meet this demand quickly and at a reasonable cost should perform well in 2026.
In a recent panel discussion, BlackRock CEO Larry Fink shared his view that tokenization and AI are two of the most important megatrends shaping the future of financial services.
— Bakkt (@Bakkt) December 22, 2025
At Bakkt, we see their convergence as critical to building the next generation of regulated digital… pic.twitter.com/1arE8scOLp
It’s the Economy, Stupid
Hopes of a strong US stock market came to pass this year, but lower expectations for other markets proved less accurate. One reason was that few fully appreciated how focused the US government would be on pushing its political agenda at the expense of economic growth.
The shockwaves that followed “Liberation Day” highlighted opportunities in emerging market equities and bonds. The risk attached to emerging market assets has narrowed, and they are likely to compare well with those in developed markets next year.
MSCI notes that emerging markets led global returns in 2025, outperforming US equities as EM stocks and hard currency debt rallied on improving fundamentals.
Emerging markets surged in 2025, with a performance gap investors have not seen in years. The MSCI Emerging Markets Index was up more than 30 per cent in dollar terms by the end of November. This strength extended beyond equities, with EM dollar-denominated sovereign bonds up more than 11 per cent as borrowing costs fell and credit quality improved, pushing yield spreads against US Treasuries to multi-year lows.
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If a Stock Falls and No One Hears It, Does It Make a Sound?
Quality stocks took a hammering this year as investors were swept up in artificial intelligence enthusiasm and geopolitical events increased the appeal of defence stocks. This prompted analysts at Amova Asset Management to suggest that a rebound is likely.
The view is that possible triggers, such as fatigue in the artificial intelligence theme, geopolitical tensions, trade disruption, credit stress and labour market weakness, could drive a shift into high-quality stocks of companies with steady cash flows, strong balance sheets and lasting competitive strengths.
This view is shared by the chair of Rockefeller International, who describes quality stocks as a rare opportunity, particularly as they tend to deliver the best returns after periods of weak performance.
One option for investors looking to increase exposure to such stocks is through exchange-traded funds. For those willing to put in the time, careful screening could also produce a list of several hundred quality stocks trading at attractive valuations.
The More Things Change, the More They Stay the Same
The focus on technology stocks, and the so-called magnificent seven in particular, has overshadowed opportunities in more traditional sectors such as consumer goods and healthcare. Many believe these areas are undervalued, despite offering steady revenue and a history of returning profits to shareholders.
This feeds into the wider debate around diversification. According to Invesco, investors have overlooked the potential benefits of moving into lower valuation areas, such as smaller companies or value stocks, or using alternative weighting methods. In part, this is because there has been no clear trigger to prompt such a shift.
In the firm’s view, improving growth combined with lower US interest rates is likely to create a more supportive backdrop for stocks beyond the largest names. It notes that small-cap indices such as the Russell 2000 Index and the S&P 500 Equal Weight Index reached record highs last week. For investors who have been waiting for a reason to look beyond mega-cap technology, the triggers may now be in place.
Does the Dollar Decline Have Further to Go?
It has been a difficult year for the greenback. Analysts at Deutsche Bank believe the trade-weighted dollar could fall a further 10 per cent by the end of next year, based on valuations, balance of payments trends and relative monetary policy cycles.
The currency has recovered only a small share of the losses suffered in the first six months of 2025. While a fall on the scale seen in 1985 or 2002 has been avoided, it is still likely to be more than two decades since the dollar last finished a year so much lower than where it began.
The US dollar’s share of global foreign reserves held steady in Q2, after adjustment for currency fluctuations. Exchange-rate effects drove nearly all the decline in the US currency’s share of reserves. Our blog has the details. https://t.co/XtaRfBIbqL pic.twitter.com/fXcUkRkg7U
— IMF (@IMFNews) December 21, 2025
Deutsche Bank’s view is that the dollar remains overvalued due to an expanding current account deficit, which appears to have exceeded the key 4 per cent of GDP level over the past 12 months. This level of external funding need has often been a signal of dollar weakness.
Portfolio inflows have helped offset America’s deficits in the past, but this support now appears to be under strain.
Finally, thank you for taking the time to read this column. I hope it has been informative and, at times, amusing. On that note, I will leave the last word to another Irishman, comedian Dave Allen, and sign off by saying, “thank you and may your God go with you”.
