The quarter began strongly and global equity markets were positive. This was supported by strong economic data across most major regions. Even though there was volatility because of the US-China relationship, Developed Markets returned 2.7% largely due to AI technology gains. November and December was more balanced. This was partly as investors moved out of “AI darlings” and because of a 43-day US government shutdown.
The 12-month return for the MSCI World Index (hedged to AUD) was 19.1%.
USA
The S&P 500 returned 2.7% over the quarter. AI investment continued in large-cap technology stocks, although there were concerns over stretched valuations. These concerns led to investors moving out of these stocks around mid-quarter. US macroeconomic data was strong. The US real GDP for the 3rd quarter lifted to 4.3% (annualised). The US Federal Reserve cut rates, as expected, to 3.75% in December.
Europe
European equity markets were positive in the quarter (the MSCI Europe Index (in EUR) +5.9%). The European Central Bank kept policy rates on hold at 2% for a fourth consecutive meeting. They upgraded the GDP forecasts for 2025–2028, reinforcing confidence in a soft-landing scenario.
Asia
Asian equity market performance was mixed. Taiwanese and Korean equity markets were very strong early in the quarter with double-digit returns (in local currency) in October, driven by the Technology and Industrials sectors.
Interest in semiconductor and AI supply-chain names was weaker into November, before rebounding sharply in December.
Chinese equities were somewhat muted, due to ongoing concerns about US-China trade relations and a weaker domestic outlook.
Australia
Australian equities fell for the quarter (-0.9%). The Materials sector was strongest (+13%). The Information Technology sector fell (-23.7%). The Reserve Bank of Australia (RBA) kept the cash rate at 3.6% in December. This was because of ongoing inflationary pressure and signs of tightness in the labour market.
Currency and bonds
Global Bond (in AUD) performance was positive (+0.7%) for the quarter. Australian Bond performance was negative (-1.1%). Some data released raised concerns that inflation is persisting in the Australian economy. This leads the market to expect a rate rise may come in 2026.
The Australian Dollar rose 0.6% relative to the USD for the December quarter. Most major currencies were stronger relative to the USD, with the exception of the Japanese Yen.