2025 delivered another mystifying year in which markets again proved more resilient than expected, with equities ending higher, bonds muddling through, and policy uncertainty dominated by President Trump’s tariff agenda and persistent China tensions. Inflation continued to grind lower globally but stayed sticky in the US and Australia, reducing the urgency for interest rate cuts, even as growth slowed and political risk rose.
Market performance
Global equities chalked up strong gains in 2025, with developed markets ending the year comfortably positive after navigating repeated bouts of volatility around trade headlines, earnings downgrades, and central bank meetings.
The year began with optimism that slowing inflation would allow central banks, including the RBA, to deliver more meaningful rate cuts. However Q2 jitters around tariffs and weak global trade raised fears of margin pressure, slower growth and, locally, a more abrupt slowdown in an already sluggish Australian economy.
As Trump’s tariff program rolled out, equity markets saw a sequence of mini shocks that repeatedly repriced markets, and Australian equities were not immune given our high exposure to resources and China-linked demand.
While US markets were still dominated by mega cap tech, investors favoured Europe and select Asian markets as there was growing concern about US debt and foreign policy, plus a softer US dollar late in the year. While European banks and defence stocks led the charge, emerging markets posted exceptionally strong gains led by AI-themed stocks in China, South Korea and Taiwan.
Defensive sectors such as staples and healthcare regained popularity as investors sought out safe havens against political uncertainty. In Australia, healthcare and quality infrastructure companies regained favour.
Within technology and communication sectors, investors favoured established, high cash flow businesses over speculative “concept” companies, both offshore and in Australia.
Bonds spent much of 2025 caught between fiscal risk driven higher term premiums and slower growth plus disinflation. Early year hopes for aggressive easing drove a rally in duration and renewed enthusiasm for longer dated government paper, including Australian Commonwealth bonds. However that optimism faded as structural US fiscal deficits and rising issuance needs pushed term premiums higher and periodically steepened yield curves. This limited total returns and reminded investors that “bonds as ballast” was no longer a given, with Australian yields pulled along by global dynamics despite the country’s still benign public debt metrics. Credit markets proved more resilient than feared; investment grade spreads stayed contained, while high yield saw more differentiation, and in Australia bank and high-quality corporate credit remained relatively well behaved even as pockets of stress emerged in more leveraged property and consumer facing names.
It was another strong year for asset prices
Australia
- Australian Equities: 8.91%
- Australian Bonds: 3.83%
- Australian Listed Property: 7.15%
- Australian Direct Property: 6.08%
- Australian Cash: 3.65%
- Global Equities: 14.31%
- Global Bonds: 4.66%
- Global Listed Property: (Unhedged): 3.59%; (Hedged): 10.15%
- Global Listed Infrastructure: (Unhedged) 10.67%; (Hedged) 14.60%
- Emerging Market Equities: 22.44%
- US Tech (NASDAQ): 14.91%
Source: Morningstar, as at 19 December 2025.
Global markets
The global economy slowed but did not break, with growth stepping down to a low 3%, remaining highly uneven across regions. Developed economies saw activity cool, while parts of Asia and emerging markets benefited from fiscal policy changes to support growth and supply chain reconfiguration.
Australia sat in the slow growth camp. Population growth and public spending masked very weak changes, while higher mortgage rates and rents weighed heavily on household income and confidence.
Inflation continued to move in the right direction at the headline level but remained above target in many economies, including the US and Australia. At home, while the price of goods slowed, the price of housing and services rose. This left the RBA uncomfortable that underlying inflation would glide neatly back into its 2-3% target band.
Globally, central banks broadly shifted from aggressive tightening to cautious easing, but the scope of rate cuts fell well short of early year hopes. For Australia, that meant repeated oscillation between expectations of RBA cuts and fears that sticky services inflation would keep rates on hold.
The US spent 2025 in a “slow grind” phase, growth decelerated but avoided outright recession, consumption became more fragile, and capital expenditure concentrated in AI, reshoring and energy/security rather than broad based expansion. With all that, core inflation remained sticky and forced the Fed into a cautious, limited easing cycle.
The Euro area remained near stall speed with manufacturing under persistent pressure, services only partly offsetting, and the European central bank delivering modest easing.
Emerging markets again split into reform oriented and commodity exporting winners versus more fragile, externally reliant economies.
Politics and policy
Politics once again impacted markets, with President Trump’s second term setting much of the tone through an aggressive trade strategy. Broad tariffs on import, especially from China, but also Mexico and Canada, rekindled uncertainty about global supply chains and the inflationary implications of “America First” trade policy. This would have an indirect impact on Australian exporters via weaker trade volumes, more volatile Chinese growth and higher global uncertainty. The US-China relationship moved between confrontation and fragile truce as Washington layered on tariffs and export controls while Beijing responded with targeted measures on critical minerals, energy and select US linked corporates. This underlined China’s leverage over key inputs and reminded Australia of the strategic sensitivity of its own resource exports.
These policies, as well as ongoing tensions in Eastern Europe, the Middle East and parts of the Indo Pacific, reminded us that politics, rather than traditional business cycles, would remain central to market outcomes, with Australia navigating these currents as a small, open, resource rich economy.
Outlook: key themes for 2026 and beyond
Markets are transitioning from a world dominated by central banks to one in which government actions and geopolitical factors often take the driver’s seat. For Australia, that means shocks will continue to transmit quickly via trade, confidence and capital flows, but local choices around productivity, tax and migration will increasingly determine how those shocks are absorbed.
Key issues into 2026 include slowing growth in Australia and overseas; the evolution of the tariff regime and its spillovers into commodity demand; and geopolitical red lines across the Indo-Pacific. For investors, diversified exposure across regions, sectors and styles continues to be key.
The coming period looks less like a return to any historical steady state and more like a continuing experiment in managing high debt, politicised trade and contested geopolitics, conditions that will likely continue to reward flexibility, active risk management, and a willingness to challenge comforting narratives.