Key points
The major themes dominating markets are:
- Slowing economic growth in the developed world, primarily due to President Trump’s ongoing global tariff war, continuing geopolitical tensions, rising budget deficits and government debt.
- Investor sentiment has recovered from depressed levels in April to euphoric levels as investors anticipate positive outcomes to tariff negotiations and interest rate cuts.
- Global market share indexes are expected to reflect increased earnings from stocks other than the Mag7 in late 2025 and 2026.
- Opportunities continue away from the US, e.g. Australia, Europe, the UK, Japan and emerging markets.
The year so far
The 3 months to 31 July were a complete contrast to the negative returns on all share indexes reported for the 3 months to 30 April. Share market sentiment believes that the US administration will continue negotiating tariffs, and interest rates will fall in the developed world. Europe and the UK are benefitting from increased stimulus for defence and infrastructure spending.
Returns of major asset classes to 31 July 2025
|
Asset Class % |
3 months |
6 months |
1 year |
Ann.3 year |
Ann. 5 Year |
Ann.10 year |
|
Global Shares in USD |
12.1 |
8.2 |
16.4 |
15.8 |
13.3 |
10.6 |
|
Global Shares in AU |
11.4 |
4.8 |
18.1 |
19.0 |
15.8 |
12.1 |
|
US Shares in AU |
13.5 |
2.4 |
18.0 |
20.3 |
18.4 |
15.2 |
|
Emerging Markets in AU |
12.2 |
12.2 |
19.6 |
14.0 |
8.2 |
7.6 |
|
Australian Shares |
8.2 |
4.2 |
11.8 |
12.3 |
12.3 |
8.7 |
|
Australian Small Companies |
9.7 |
4.7 |
11.5 |
7.1 |
7.7 |
7.8 |
|
Australian Listed Property |
10.4 |
4.6 |
10.2 |
12.3 |
13.0 |
8.1 |
|
Australian Bonds |
0.9 |
3.7 |
5.2 |
2.7 |
-0.2 |
2.2 |
|
Global Bonds (Hedged AUD) |
0.4 |
2.1 |
3.3 |
1.4 |
-0.9 |
1.9 |
Returns for all asset classes were positive for the 3 months to 31 July. The returns for 12 months were very strong across all asset classes. The returns for global shares over 3 years were exceptional, driven by US equities that have provided unprecedented returns of over 20% each year. Over one year, Australian bonds outperformed both global bonds (hedged) and the cash rate.
Outlook for economies and markets
The IMF produced the following forecasts last month in its World Economic Update.
|
IMF World Economic Outlook Projections July 2025 |
||||
|
|
2023 |
2024 |
2025 |
2026 |
|
World Output |
3.5 |
3.3 |
3.0 |
3.1 |
|
Advanced Economies |
1.8 |
1.8 |
1.5 |
1.6 |
|
United States |
2.9 |
2.8 |
1.9 |
2.0 |
|
Euro Area |
0.5 |
0.9 |
1.0 |
1.2 |
|
Emerging / Developing Markets |
4.7 |
4.3 |
4.1 |
4.0 |
|
Australia |
2.1 |
1.0 |
1.8 |
2.2 |
The forecasts show very anemic world growth for 2026. Nevertheless, advanced economies led by the US have slowed from 2023/4 levels. The growth in the Eurozone varies considerably by country. Australia is expected to improve modestly to 2.2% and Emerging Markets are anticipated to show the highest growth, led by India and China.
However, the International Monetary Fund points out that the risks to growth are skewed to the downside, with the level of US tariffs being the primary concern.
The issue facing investors is that valuations for global share markets are at highly elevated levels, with the Australian and the US being at the highest levels in 20 years. While earnings growth continues to be strong, the impact of the US tariffs in the second half of 2025 will challenge markets.
Conclusion
Our preferred approach in times of uncertainty remains:
- Continue to be diversified by asset classes.
- Incorporate active management.
- Bonds and high-quality credit for income and stability.
- Regular rebalancing to maintain target allocations.
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.
