What Assets Are Favored In 2025? Dollar Index -9.8% While China Equity +22%
Asset Performance: Gold Leads the Way, China Rides the Tailwind, Dollar Under Pressure
Over the past year, asset classes have shown significant divergence in performance. Gold $SPDR Gold Shares(GLD)$ led the pack with a 30.5% annual return, reflecting robust safe-haven demand; European equities $iShares Europe ETF(IEV)$ (24.5%) and Chinese equities (21.9%) $iShares China Large-Cap ETF(FXI)$ followed closely, while Bitcoin (19.5%) exhibited greater volatility.
In contrast, the U.S. Dollar Index $USD Index(USDindex.FOREX)$ fell 9.8%, while crude oil prices declined 10.3%, highlighting pressures in commodity and currency markets. U.S. equities (10.3%) $Invesco QQQ(QQQ)$ $NASDAQ(.IXIC)$ $SPDR S&P 500 ETF Trust(SPY)$ $S&P 500(.SPX)$ and high-yield bonds (8.4%) delivered solid returns, whereas cash (2.8%) and government bonds (6.1%) yielded $iShares 20+ Year Treasury Bond ETF(TLT)$ relatively modest gains.
Overall, the return on assets has shown a pattern where safe-haven assets outperform riskier assets, reflecting the prevailing global economic uncertainty.
From a macro perspective, China's stock market has emerged as the world's best-performing market over the past two years, yet it remains undervalued relative to Chinese bonds. This stands in stark contrast to the United States, Europe, and Japan, where stock markets have reached record highs relative to government bonds. This divergence stems from differing policy approaches: China's regulatory tightening has suppressed stock valuations, while loose liquidity in developed markets has boosted equity premiums.
Capital Flows: Bond Inflows Slow Down, Chinese Stock Market Attracts Funds
Recent capital flows indicate net inflows of $1.97 billion into the bond market (the lowest in four weeks), $1.66 billion into the stock market, and inflows of $680 million and $310 million into cash and cryptocurrency, respectively. Key highlights include:
China's stock market saw a net inflow of $3.9 billion (the highest since April 2025), signaling a rebound in investor confidence in emerging markets.
European equities saw net outflows of $1.2 billion (marking the first consecutive two-week outflow since February 2025), reflecting geopolitical concerns.
The financial sector saw net inflows of $2.9 billion (the highest since January 2022), while the technology sector recorded modest inflows of $300 million.
Fund flows highlight regional divergence: Emerging markets (net inflows of $3 billion) and the U.S. (net inflows of $8.5 billion) attracted capital, while Japan (net outflows of $900 million) and Europe (net outflows of $1.2 billion) faced pressure. By sector, materials ($4.7 billion) and financials ($2.9 billion) saw strong inflows, whereas real estate (net outflows of $300 million) and utilities (net outflows of $28 million) experienced reductions.
Private Client Investments: Preference for Industrial Bonds and Treasury Bonds, Low Cash Holdings
Bank of America Private Clients (managing $4.1 trillion in assets) allocate 64.2% to equities (a historic high), 18.2% to bonds, and 10.6% to cash. Recent trends include:
Net inflows into Treasury notes (2-10 year maturities) hit a record high. Since 2023, exposure to short-term Treasury bills has decreased by $28 billion, while exposure to Treasury notes has increased by $14 billion.
Over the past four weeks, industrial stocks, investment-grade bonds, and municipal bonds have been favored in ETF investments, while healthcare, energy, and consumer staples have seen reduced holdings.
Economic and Policy Insights: Rising Inequality, AI-Driven Transformation
In 32 global elections held in 2024, 26 saw the defeat of incumbents; 6 out of 11 elections in 2025 resulted in leadership changes, signaling the rise of populism. Germany's mainstream parties secured only 49% of the vote—the lowest since World War II—with similar trends observed in the UK, US, and France.
On the other hand, government debt remains high. U.S. government debt has reached $37 trillion (exceeding the combined GDP of China, Japan, Germany, and India), with annual expenditures of $7.1 trillion (equivalent to spending $100 per second for 2,259 years). Nominal U.S. GDP grew by 52% over five years (with inflation contributing 28%), but labor productivity growth slowed to 1.3% (below the 2.2% rate of the 1990s). The ratio of financial assets to GDP reached 6.1 times, approaching its 2021 peak.
AI-driven growth is projected to double data center electricity demand by 2030 (equivalent to Japan's national power consumption), driving a 6.3% increase in U.S. electricity prices. Tech giants' capital expenditures now account for 55% of cash flow (a significant rise from 20% in 2012).$nvda
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