September 2025 Update

September, 2025

Enjoy the Ride?

It's September. Usually, the worst month for equity returns. There are plenty of reasons to fear a sell-off this time. The simplest being that trees don't grow to the sky and that the performance, particularly of the US and Chinese markets, has been consistent and strong despite incredulity at novel economic policy at the start of President Trump's second term. Profit taking is always tempting. Add in concerns around politicisation of The Fed, (The ECB succumbed years ago), the removal of the BLS commissioner (for good reason but not the one used by the President), the legal rejection of US tariff policy on the basis of Executive over-reach, and the rise in long bond yields almost everywhere with enormous debts to be serviced and there are now headwinds to further P/E expansion and low volatility continuing.

The global strategies rose in August - over 2.5% for the diversified and over 3% for the value oriented.

Detractors to performance came from Bumble (a small position due to its very high volatility), Kurita Water after insipid results, and Applied Materials (ditto). All fell 15% or more. Positive contributions were made by Teradyne, Hokkaido Electric Power, Tenet Healthcare. Teradyne rose 30% in the month. The tech related stocks are very volatile and so it makes sense to be diversified. We own 15 positions classified in GICS as Information Technology and many of our positions classified in GICS as Industrials, such as Quanta Ebara and Emcor are very leveraged to technology spend and innovation.

We made a few trades. Weyerhauser was sold to reinvest in Logitech a Swiss based NASDAQ quoted manufacturer of computer hardware peripherals. We took profits in Iberdrola (see below for an observation on Renewables investments) and added to positions in Magna in Canada and Inpex in Japan.

The momentum in the market generated by an apparently dovish tone from Fed Chair Jay Powell, at Jackson Hole, faded into the month end. NVIDIA's latest results confirmed a turning point; no longer the big positive surprises. Earnings were strong-$46.7 billion in quarterly revenue, up 56% year-on-year-and guidance for the next quarter, of $54 billion met expectations. But the results packed no upside surprises. In a market priced for perfection, that was enough to dampen sentiments. The focus is shifting. With mega-cap valuations appearing stretched, investors are rotating toward sectors still in early growth phases.

We list those opportunities here:

First, infrastructure. The AI buildout is driving unprecedented demand for power and data centres. We are witnessing full-cycle capital investment across compute, grid, and energy systems. This is now about physical scale-AI at industrial intensity. Infrastructure spending could run into the trillions over the next five years.

Second, applications. Venture capital is reallocating toward AI tooling-vertical software, developer platforms, embedded systems. These are early-stage plays aligned with a deployment cycle just getting started.

The next leg of tech earnings will not hinge on headline beats from familiar names. It will come from the buildout beneath and the applications above-the hard infrastructure to run AI at scale, and the software that makes it productive. Investors who pivot early will be positioned in the true structural growth engines of the next decade.

Where the Future (threat?) Lies: The Strategic Rise of the SCO

Given the current political backdrop, the Shanghai Cooperation Organisation (SCO) summit being held in Tianjin this week is more than a symbolic gathering. With China hosting Russian President Vladimir Putin and Indian Prime Minister Narendra Modi, the summit marks a deeper pivot toward strategic alignment among non-Western powers.

Often dismissed as toothless by Western powers, the SCO is quietly becoming functional. It offers emerging powers a platform for coordination without Western preconditions. What is emerging is a pragmatic multipolarity-one rooted less in ideology and more in hard assets: logistics, energy, population scale, and technology.

While Western nations grapple with fiscal incontinence, and very poor GDP per capita growth, the SCO bloc is building continuity. Long-term trade corridors, digital infrastructure, and energy ties are becoming the new instruments of influence. China's Belt and Road, Russia's pipelines, India's digital expansion, and its pivot to importing Russian energy despite alliances with The West, and Central Asia's resource leverage are forming an increasingly coherent framework.

The SCO may lack the force projection of NATO or the capital heft of the G7, but it reflects a critical shift in global influence toward execution, not just rhetoric. For investors, the message is clear: the world's growth engines and industrial productive capacity are increasingly anchored in regions prioritising scale, interdependence, and pragmatism. It is looking (pace Orsted) more and more that Net Zero, wind and solar, and their inefficiency as sources of essential power for industrial manufacturing, are incompatible with re-industrialisation (including Defence spending) by the West. Orsted the Danish windfarm and solar operator fell almost 35% as a large rights issue to remain viable shocked the market. China is essentially commissioning a new coal fired power station weekly. As a reminder the populations of India and China are combined over eight times that of the United States and relative labour productivity will begin to matter. Put another way, if India can pivot so quickly from being pro West to pro East, and investors are remaining comfortable with their allocations to India, then the Chinese market on a P/E half that at 11x should be of interest after years of neglect?

Japan remains a favourite. We have always thought 'G' critical to a company's sustainability and indeed to the whole corporate - individual - government ecosystem. The number of outside directors serving as chairmen of listed Japanese companies has doubled from 5 years ago. However, it is still less than 10% of total available positions and has to double again to reach US 'standard'. It is the journey to improvement that will drive returns on capital in Japan.

Delft Partners September 2025