Global developed market returns were subdued in December. The MSCI World Index (hedged into AUD) returned 0.5%. This brings the total returns for the MSCI World Index for the past 12 months to 19.2%.
USA
The S&P 500 index posted a very small return of 0.1% for the month, although it gained 17.9% over the year.
Tech-heavy US indices were behind their global peers. This reflected an increased caution around the sustainability of earnings growth for AI-focussed companies.
Real GDP growth data released in December showed the U.S economy grew to an annualised 4.3% pace in Q3 2025. It was driven by robust consumer spending, stronger exports and increased government spending.
November inflation data was below expectations, and unemployment was higher at 4.4%. The US Federal Reserve Bank delivered a widely anticipated rate cut to target 3.5-3.75% at its December meeting.
Asia
In Asia, local currency returns were generally positive.
Japanese equities rose 1.0% despite a 25bp rate hike to 0.75%, the highest since 1995.
Korean equities were the best performers in Asia for the month. Korean equities gained 10.4% for the month, driven by strength in Technology. Taiwanese equities were the second-best performers. Chinese and Indian equities underperformed.
Europe
The MSCI Europe (in Euros) rose 2.6%. This was due to gains in the financial sector. Energy and Consumer Staples struggled.
The European Central Bank held rates at 2% for a fourth consecutive meeting. They upgraded GDP forecasts for 2025-2028.
UK equities finished the year higher, with the FTSE All-Share among the stronger performers, arguably supported by easing inflation and a late-year 25bp rate cut to 3.75%.
Australia
Australian equities rose 1.4% over the month. This partially reversed the losses of November. Gains were led by the Materials sector (+6.8%), the Financial sector (+3.4%) and Real Estate Investment Trusts (+2.0%), which offset weaknesses in other sectors.
The RBA kept the cash rate at 3.6% at their December meeting. It reinforced their caution around ongoing inflationary pressure.
Currency and bonds
Bond yields moved higher over the month. The Australian 10-year bond increasing by 23 bps to 4.75% and reached its highest level in over 2 years in the early part of December. The U.S. 10-year Treasury yield increased 15 bps to 4.17%. Australian bonds returned -0.6% over the month, while Global bonds declined 0.2%.
The U.S. Dollar weakened against most major currencies in December, with the Australian dollar rising 1.7% against the USD.