December Quarter 2025: A cautious end to the year for equities

• Despite a brief sell-off in early November, global share markets continued to advance higher over the December quarter.

• Market leadership rotated from technology to defensive sectors.

• Australian shares continued to underperform, as local bond yields increased.

International Equities

Following a very positive start to the quarter in October, global equity markets did lose some momentum with a brief downturn recorded in early November.

Valuations then recovered modestly, with the overall developed market average return for the quarter being 3.5%.

In addition to some slowing in the momentum of price growth, the quarter also marked a shift in market leadership, with the U.S. technology sector underperforming the global average.

Growing concerns over the magnitude of capital expenditure being made across the technology sector in Artificial Intelligence related infrastructure, resulted in the U.S. technology sector rising by just 0.5% over the quarter.

In contrast, more defensive sectors, such as healthcare (up 14.5%), financials (up 4.4%) and communication (up 7.5%) outperformed on the U.S. market. The lack of growth in technology stocks resulted in the U.S. underperforming over the quarter, with the S&P 500 Index rising by 2.7%.

The Japanese share market was the standout last quarter with the Nikkei 225 Index jumping 12.6%. News that the country had elected a new Prime Minister was viewed positively, with expectations that the new leader will be pro-economic growth and may expand government spending. Optimism around the impact of Artificial Intelligence and robotics on Japan’s industrial base also added to investor confidence, as did some weakening in the Yen last quarter.

Although conditions on China’s share market weakened following a strong September quarter, the overall MSCI Emerging Market Index outperformed the develop market average by advancing 4.1%. Healthy gains in South Korea (up 30.7%) and Taiwan (up 13.8%) offset the Chinese decline, with stocks such Samsung and TSMC (the Taiwanese semi-conductor manufacturer) posting impressive gains. India also recorded an increase of 6.1%, following a year of underperformance.

Interest rate sensitive assets were provided with some support by a cut in U.S. interest rates and the U.S. Federal Reserve Bank’s decision to commence adding funds to money markets via a program of regularly purchasing Treasury Bills (also referred to as “Quantitative Easing”). However, despite this policy change, global listed property still finished the quarter 0.2% lower, although infrastructure gained 2.2%. In Australia, there was less support for real assets as interest rate expectations here moved higher. As a result, the Australian listed property sector declined 1.2% over the quarter.

Australian Equities

Underperformance on the Australian market continued over the December quarter, with the S&P ASX 200 Index falling 1.0%. On an annual basis, the Australian market now lags the global equity average return by just over 8%.

Resource stocks were by far the strongest contributor to the overall market. A slight 1.7% firming of the iron price, and an 11.9% jump in the gold price, contributed to the 11.3% gain in resource sector share prices.

The largest decline was recorded in the technology sector, which fell 26.0%. This may have partly reflected the global weakness in the sector, in addition to some local fund repositioning. A period of weakness in the share price of CSL Limited (down 12.9%) also had a negative impact on the healthcare sector.

Although there was minimal movement in the financial sector overall, there was a continued rotation away from the Commonwealth Bank (down 3.8%), with ANZ appearing to be a beneficiary of this rotation with a gain of 11.9%.

Fixed Interest & Currencies

The Australian Reserve Bank left cash interest rates unchanged at 3.6% over the December quarter.

However, with inflation being higher than previously expected, market consensus is now firmly supporting an interest rate rise in the first half of 2026.

Australia’s annual inflation rate was recorded at 3.4% in November, which is well above the 1.9% prevailing in June.

As a result, longer term yields have shifted higher, with the Australian 10-year Government bond yield rising from 4.31% to 4.74% over the quarter.

In contrast, the U.S. central bank did cut cash interest rates in December, with the target cash rate falling 0.25% to be within a range of 3.5% to 3.75%. Whereas Australian longer term yields rose sharply over the quarter, the U.S. 10-year treasury bond yield finished the quarter just 0.02% higher at 4.18%. The 0.56% margin available on Australian 10-year yields over U.S. yields is the widest month-end gap recorded since June 2022.

Possibly due to the higher longer term Australian interest rates on offer, the $A appreciated in value over the December quarter. Against the $US, the $A rose U.S. 0.9 cents to U.S. 66.9 cents. The $A was also firmer against the Japanese Yen (up 7.1%) and the Euro (up 1.4%). As a result, returns from global equities with hedged currency positions were slightly higher than equivalent investments with unhedged currency exposures over the quarter.

Important Information

The following indexes are used to report asset class performance: ASX S&P 200 Index, MSCI World Index ex Australia net AUD TR, MSCI World ex Australia NR Hdg AUD, FTSE EPRA/NAREIT Developed REITs Index Net TRI AUD Hedged, Bloomberg AusBond Composite 0 Yr Index, Barclays Global Aggregate ($A Hedged), Bloomberg AusBond Bank Bill Index, S&P ASX 300 A-REIT (Sector) TR Index AUD, S&P Global Infrastructure NR Index (AUD Hedged), MSCI China (Composite) in CN, Deutsche Borse DAX 30 Performance TR in EU. Hang Seng TR in HKD, MSCI United Kingdom TR in GBP, Nikkei 225 in JPY, S&P 500 TR in USD.

General Advice Disclaimer

This document has been prepared by Sage Advisers. Sage Advisers is a Corporate Authorised Representative of Sage Advisers Pty Ltd (AFSL 238039). Any advice provided is of a general nature and does not take into account personal circumstances. Any decision to invest in products mentioned in this document should only be made after reviewing the relevant Product Disclosure Statements. Past performance is not a reliable indicator of future performance.