ALTERNATIVE MARKETS UPDATE – END FEBRUARY 2025

​Over the past weeks, a key election for Europe took place in Germany. Elections turned out as expected with strong gains of the CDU and AfD and heavy losses of the previous ruling coalition. It also showed a significant shift to the right. It is highly likely that the CDU will form a coalition with the SPD to achieve a majority. With a stalling economy, the removal of their “debt brake”, which limits the country to borrow at maximum 0.35% of their GDP, is high on the agenda. In conjunction with Trump’s administration, European countries will likely increase their defence spending over the coming years, as Europe is contributing significantly less to NATO than the US. The new administration in the US is also not slowing down after its highly active start on 20th January 2025. In particular, the proposed and increasingly severe tariffs have caused markets to plunge in the past weeks. Not only are companies hurt directly by countermeasures of other countries, but it also causes significant headache on a return of increasing inflation with already high interest rates.

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RESEARCH PERSPECTIVE VOL. 246 February 2025 Alternative Markets Update Over the past weeks, a key election for Europe took place in Germany. Elections turned out as expected with strong gains of the CDU and AfD and heavy losses of the previous ruling coalition. It also showed a significant shift to the right. It is highly likely that the CDU will form a coalition with the SPD to achieve a majority. With a stalling economy, the removal of their “debt brake”, which limits the country to borrow at maximum 0.35% of their GDP, is high on the agenda. In conjunction with Trump’s administration, European countries will likely increase their defence spending over the coming years, as Europe is contributing significantly less to NATO than the US. The new administration in the US is also not slowing down after its highly active start on 20th January 2025. In particular, the proposed and increasingly severe tariffs have caused markets to plunge in the past weeks. Not only are companies hurt directly by countermeasures of other countries, but it also causes significant headache on a return of increasing inflation with already high interest rates. Despite the struggling European economy, European equities have done very well in 2025 so far, as shown in Figure 1. The DAX is up already 12%, while the UK FTSE 100 has gained 7.5% so far. In a steep contrast, the US stock market struggled and is flat in 2025. European equities have steadily increased throughout the year apart from last week, when European equities were flat. Contrarily, US equities fell significantly amid tariff alongside its potential adverse effects. The US tech sector, which is dominating the US market has also experienced a reversal recently, which contributed significantly to the most recent sell-off. European equities are profiting relatively more than the US from the ongoing piece talks between Ukraine and Russia, due to their proximity. For Germany specifically, enthusiasm about the new government has also boosted confidence. Figure 1: Price Development of the S&P 500, DAX and FTSE 100 Index Since the Beginning of 2025, Source: Investing, March 2025 With a stabilizing situation – both in terms of the Ukraine-Russia war and politically – bond yields have remained relatively flat in 2025 thus far. Further falling interest rates are likely to occur when signals for a resolution in Eastern Europe, which still seems very uncertain after the most recent talks between the US, Russia and Ukraine. In the US, bond yields have fallen slightly, despite the fear of resurfacing inflation and potentially further rate hikes. With worsening economic data, interest rate cuts may become more urgent and bringing down interest rates is another core focus on Trump. The most recent decline in US yields was caused by sell-off of risky assets, as investors moved into safer assets, such as US Treasuries, which led to price increases, as shown in Figure 2. Japan is showing yet another development, as 10-year bond yields are gradually increasing. The Japanese central bank has started to hike rates late and is anticipated to continue this trajectory, which caused this steady increase. Figure 2: Yield Development of the US, UK, Germany and Japan 10-Year Bonds Since the Beginning of 2025, Source: Investing, March 2025 Despite recently mostly positive news around cryptocurrencies, most tokens took a significant hit over the past week as the risk sell-off continued. At the beginning of the year, the market rose anticipating a positive impact on the industry under the Trump administration. However, as tariff talks intensified, market concerns rose and led to a gradual sell-off of risky assets, which peaked last week further elevated by a $1.5bn theft of crypto exchange ByBit. Bitcoin briefly fell below $85k after just surpassing $105k a few weeks ago as shown in Figure 3. Since then, the market rebounded to nearly $95k again. Institutional adoption of cryptocurrencies is steadily increasing with the recent purchase of nearly half a billion by Abu Dhabi and more notably Trump’s plan of a strategic Bitcoin reserve. On 2nd March 2025, Trump also announced an extended crypto reserve, including assets such as Solana (SOL), Ethereum (ETH) and Ripple (XRP) among others. Over the past months, Ethereum also performed relatively poorly compared to most other tokens. This can be largely attributed to the strong growth of Solana in the developer and usage space. 2024 marked the first year, when more people and project were working on Solana than Ethereum – this marks the first time since the launch of Ethereum. It could also be an “early” indicator that Solana might overtake as the main ecosystem in the crypto space. Figure 3: Price Development of Bitcoin (BTC), Ethereum (ETH), Ripple (XRP) and Solana (SOL) Since the Beginning of 2025, Source: CoinMarketCap, March 2025 Gold and Silver remain among the most profitable assets in 2025, despite the phenomenal past year of gold. During February 2025, gold nearly reached its new milestone of $3k per ounce, while silver followed gold’s trajectory. Amid the global uncertainty on the outcome of the war and the implications of a rather uncertain Trump administration, gold is maintaining its strong trend from 2024, as shown in Figure 4. Oil, gas and uranium will be interesting commodities to watch, especially after Trump’s energy emergency declaration. It allows to lean more into fossil fuels and rely less on renewable energy sources. It also causes prices to fall and grants access to cheaper energy. Nuclear energy, which has seen a strong resurgence following the massive AI development has taken a significant hit. Nuclear energy is beloved by AI companies for their steady energy generation, but its importance is put somewhat into question with an influx of cheap (and more importantly steady) energy from fossil fuels. Figure 4: Price Development of Gold, Silver, Crude Oil, Natural Gas and Uranium Since the Beginning of 2025, Source: Investing, March 2025 The current financial ecosystem is highly attractive for hedge funds, as there are plenty of opportunities in all markets. The elevated uncertainty and recent sell-off also increases the appeal of further diversification and the capabilities of moving quickly in the market. In January 2025, particularly Global Macro and Equity strategies stand out with a strong performance of nearly 8% and 5% respectively. Fixed income posted solid gains of 0.5%, while cryptocurrency hedge funds remained flat this month. STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Dubai and Umm Al Quwain in United Arab Emirates and Tallinn in Estonia. We are advising 30+ best in class single hedge fund and multi-strategy managers across equity, credit, and tactical trading (global macro, CTAs and volatility). 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