The quarter commenced with positive market momentum following a successful conclusion to 2024. However, it was marred by significant volatility and mixed performance across global markets.
Central bank policies, inflation concerns, and US tariffs played pivotal roles in influencing market sentiment and performance. While some asset classes and regions showed resilience, others faced notable challenges, reflecting the complex and evolving global economic landscape. Defensive assets offered some protection, demonstrating the importance of maintaining a diversified portfolio, particularly during periods of market volatility.
Let’s break down how the quarter played out.
In January, financial markets had mixed performance across asset classes but ended on a positive note for most. Global shares continued their upward trend from 2024, achieving a 3.3% return. Australian shares outperformed with a 4.6% gain, while New Zealand shares saw a modest decline of 0.9%. Central banks shifted their policies at a more measured pace, with varied actions including a historic rate hike by the Bank of Japan and steady rates maintained by the U.S. Federal Reserve.
February posed challenges for equity markets, with most share indices recording negative returns. Market volatility was largely due to US tariffs and their potential effects on inflation and economic growth. A significant correction in technology stocks, particularly those known as the “Magnificent Seven,” and mixed economic data added pressure to equity markets. Despite positive earnings from market leaders, optimism waned as investors reassessed economic growth forecasts. In contrast, fixed income and some alternative assets demonstrated resilience, with Global Fixed Interest, New Zealand Fixed Interest, and Global Infrastructure yielding positive returns for the month.
The downward trend continued into March, presenting another challenging month for most asset classes with global shares experiencing significant declines. New Zealand and Australian shares also posted negative returns, though global infrastructure displayed modest positive performance. Emerging markets delivered slightly positive returns, providing some diversification benefits. Concerns about inflation and economic growth dominated, and markets reacted negatively to increased uncertainty around US trade policies.
Global equity markets overview
US equity markets faced significant headwinds in March, extending losses from February. Despite promising manufacturing data, sentiment soured due to inflation concerns and slowing economic growth forecasts. Corporate earnings guidance turned more cautious, highlighting uncertainty around investment decisions, increased costs, and decreased consumer spending. The technology sector experienced notable profit-taking.
US fixed income markets struggled as the Federal Reserve maintained a cautious stance on interest rates amid persistent inflation concerns. March inflation data came in below expectations but above the target of 2%, contributing to negative performance in global fixed interest.
European markets declined in March but showed relative resilience. The European Central Bank delivered another 25 basis point rate cut, providing support to European assets amid economic growth concerns. The Bank of England maintained its benchmark rate at 4.50%. Economic data revealed persistent weaknesses in manufacturing, though the services sector, particularly in Germany, showed more resilience.
Asian markets had mixed performance. Chinese markets showed some resilience despite US tariff concerns, with continued government stimulus efforts. Japanese markets faced pressure, with the Bank of Japan maintaining its gradual policy normalization and potential tariff fears creating headwinds for exports.
Australasian market overview
March saw continued challenges for Australasian equity markets. New Zealand shares fell less severely than their Australian counterparts, which declined amid concerns about the impact of global trade tensions on Australia’s export-oriented sectors.
In New Zealand, economic data from the fourth quarter of 2024 showed tentative signs of recovery. However, consumer confidence remained subdued, and the housing market continued to show weakness.
New Zealand fixed-income markets posted slight gains as investors sought safer assets amid equity market volatility. Somewhat surprisingly, the New Zealand dollar showed strength against most major currencies during March, particularly against the US Dollar and Japanese Yen.
The NZX50’s top ten stocks showed significant weakness in March. Mainfreight (MFT) was the worst performer, while Spark (SPK) and Auckland Airport (AIA) opposed the trend with positive performance for the month. This pattern reflected investor preference for defensive sectors amid the uncertain economic outlook, although even traditionally stable sectors like utilities couldn’t entirely avoid the broader market weakness.
NZX50 Top Ten Stocks Performance (%)
Outlook
The escalation of trade tensions has significantly altered the global economic outlook for 2025. Markets now face a delicate balance between growth concerns and inflation risks as tariffs threaten to disrupt supply chains, increase consumer prices, and slow economic growth worldwide.
Central banks globally now confront a challenging policy dilemma. The Federal Reserve may find its anticipated rate-cutting cycle complicated by tariff-induced inflation and an economic slowdown. The risk of “stagflation”, a combination of stagnant growth and persistent inflation, has increased, posing a significant challenge for policymakers and investors alike.
New Zealand’s economy shows some promising signs, as economic activity improved, and financial assets seemed to hold up better than the relatively safer US counterparts. However, consumer confidence remains low and economic recovery remains largely constrained by the Reserve Bank of New Zealand’s (RBNZ) relatively high interest rates. Furthermore, a global recession would likely also affect the local economy here in New Zealand.
While recent market corrections have brought valuations to more reasonable levels, the ongoing uncertainty surrounding trade policies provides greater concerns for business growth and spending. Therefore, whether significant tariffs are implemented or not, market volatility will likely continue until the economic uncertainty reduces and business conditions become more stable.
Economic Commentary Q4 2025
The quarter commenced with positive market momentum following a successful conclusion to 2024. However, it was marred by significant volatility and mixed performance across global markets.
Central bank policies, inflation concerns, and US tariffs played pivotal roles in influencing market sentiment and performance. While some asset classes and regions showed resilience, others faced notable challenges, reflecting the complex and evolving global economic landscape. Defensive assets offered some protection, demonstrating the importance of maintaining a diversified portfolio, particularly during periods of market volatility.
Let’s break down how the quarter played out.
In January, financial markets had mixed performance across asset classes but ended on a positive note for most. Global shares continued their upward trend from 2024, achieving a 3.3% return. Australian shares outperformed with a 4.6% gain, while New Zealand shares saw a modest decline of 0.9%. Central banks shifted their policies at a more measured pace, with varied actions including a historic rate hike by the Bank of Japan and steady rates maintained by the U.S. Federal Reserve.
February posed challenges for equity markets, with most share indices recording negative returns. Market volatility was largely due to US tariffs and their potential effects on inflation and economic growth. A significant correction in technology stocks, particularly those known as the “Magnificent Seven,” and mixed economic data added pressure to equity markets. Despite positive earnings from market leaders, optimism waned as investors reassessed economic growth forecasts. In contrast, fixed income and some alternative assets demonstrated resilience, with Global Fixed Interest, New Zealand Fixed Interest, and Global Infrastructure yielding positive returns for the month.
The downward trend continued into March, presenting another challenging month for most asset classes with global shares experiencing significant declines. New Zealand and Australian shares also posted negative returns, though global infrastructure displayed modest positive performance. Emerging markets delivered slightly positive returns, providing some diversification benefits. Concerns about inflation and economic growth dominated, and markets reacted negatively to increased uncertainty around US trade policies.
Global equity markets overview
US equity markets faced significant headwinds in March, extending losses from February. Despite promising manufacturing data, sentiment soured due to inflation concerns and slowing economic growth forecasts. Corporate earnings guidance turned more cautious, highlighting uncertainty around investment decisions, increased costs, and decreased consumer spending. The technology sector experienced notable profit-taking.
US fixed income markets struggled as the Federal Reserve maintained a cautious stance on interest rates amid persistent inflation concerns. March inflation data came in below expectations but above the target of 2%, contributing to negative performance in global fixed interest.
European markets declined in March but showed relative resilience. The European Central Bank delivered another 25 basis point rate cut, providing support to European assets amid economic growth concerns. The Bank of England maintained its benchmark rate at 4.50%. Economic data revealed persistent weaknesses in manufacturing, though the services sector, particularly in Germany, showed more resilience.
Asian markets had mixed performance. Chinese markets showed some resilience despite US tariff concerns, with continued government stimulus efforts. Japanese markets faced pressure, with the Bank of Japan maintaining its gradual policy normalization and potential tariff fears creating headwinds for exports.
Australasian market overview
March saw continued challenges for Australasian equity markets. New Zealand shares fell less severely than their Australian counterparts, which declined amid concerns about the impact of global trade tensions on Australia’s export-oriented sectors.
In New Zealand, economic data from the fourth quarter of 2024 showed tentative signs of recovery. However, consumer confidence remained subdued, and the housing market continued to show weakness.
New Zealand fixed-income markets posted slight gains as investors sought safer assets amid equity market volatility. Somewhat surprisingly, the New Zealand dollar showed strength against most major currencies during March, particularly against the US Dollar and Japanese Yen.
The NZX50’s top ten stocks showed significant weakness in March. Mainfreight (MFT) was the worst performer, while Spark (SPK) and Auckland Airport (AIA) opposed the trend with positive performance for the month. This pattern reflected investor preference for defensive sectors amid the uncertain economic outlook, although even traditionally stable sectors like utilities couldn’t entirely avoid the broader market weakness.
NZX50 Top Ten Stocks Performance (%)
Outlook
The escalation of trade tensions has significantly altered the global economic outlook for 2025. Markets now face a delicate balance between growth concerns and inflation risks as tariffs threaten to disrupt supply chains, increase consumer prices, and slow economic growth worldwide.
Central banks globally now confront a challenging policy dilemma. The Federal Reserve may find its anticipated rate-cutting cycle complicated by tariff-induced inflation and an economic slowdown. The risk of “stagflation”, a combination of stagnant growth and persistent inflation, has increased, posing a significant challenge for policymakers and investors alike.
New Zealand’s economy shows some promising signs, as economic activity improved, and financial assets seemed to hold up better than the relatively safer US counterparts. However, consumer confidence remains low and economic recovery remains largely constrained by the Reserve Bank of New Zealand’s (RBNZ) relatively high interest rates. Furthermore, a global recession would likely also affect the local economy here in New Zealand.
While recent market corrections have brought valuations to more reasonable levels, the ongoing uncertainty surrounding trade policies provides greater concerns for business growth and spending. Therefore, whether significant tariffs are implemented or not, market volatility will likely continue until the economic uncertainty reduces and business conditions become more stable.
28 April 2025
Sources:
Makao Investments
Refinitiv Datastream