Portfolio summary | March quarter 2025
Overview
Global equity markets started 2025 with a strong January with markets rising to all-time highs, however sentiment quickly turned negative for equities as the Trump administration began implementing aggressive policies against trade partners, seeking to change the balance of global commerce and trade. This has been broadly seen as negative for the global economy and markets, with much uncertainty about the aims and impacts of such an approach.
Developed market equities, benchmarked by the MSCI World index, returned -2.3% for the March quarter, with the largest falls coming in the month of March with a market return of -4.6%. Unusually, the US share market was among the worst performers globally, returning -5.8%, amid speculation that a chaotic policy approach from the Trump Administration could spell the end of ‘US Exceptionalism’. While this seems a hasty conclusion after only a short time in office, it clear that investor sentiment towards US assets has taken a battering; with the US Dollar, US Treasury Bonds and US Equities all being sold down in March.
Conversely, European markets had one of their strongest quarters on record with the FTSE Developed Europe index returning +9.7%. This was driven by a paradigm shift in European politics, with hopes of greater self-sufficiency and expectations of much higher fiscal spending from Germany – long regarded as the engine-room of the European economy. Greater spending on defence and infrastructure are expected to boost economic growth and improve capital utilisation across the continent. The German Dax was up an astonishing 15.0% for the quarter, with the French CAC40 up 10.4% and UK’s FTSE100 up 13.5%.
However, the Chinese market was buoyed by a tech-revival with the release of the DeepSeek AI model. This has caused Chinese investor sentiment to improve dramatically, with confidence returning that Chinese firms can successfully compete with US firms in AI arena. While the Chinese economy remains sluggish, market conditions appear to have improved. Further Government support and stimulus initiatives have also helped the market re-rate higher. The tech and consumer heavy Hang Seng index was up a heady 15.2% for the quarter and is now up 54% over 12 months.
The Australian share market was weaker during the quarter, falling -2.8%. The ASX reporting season through February was one of the most volatile on record, with companies share prices punished or rewarded for their end of year result and forward guidance. Major banks financial updates were regarded as weak, with rising technology costs causing concerns along with weak outlooks for profit growth. Technology companies, which were richly valued coming into February were sold off aggressively and were the worst performing sector.
Within Fixed Income, the US Federal Reserve kept rates on hold through the quarter at 4.5%, with Fed Chair Jerome Powell striking a relatively hawkish tone, emphasising that despite uncertainty with government policy they wish to see inflation come sustainably closer to the 2% target. In Australia, the RBA did cut rates in the February meeting to a rate of 4.1% as was widely expected, however Michelle Bullock provided guidance that any further cuts were predicated on lower inflation. Bond markets have displayed considerable volatility but have ended the quarter at similar yields to where they started, emphasising the uncertain outlook for economic growth and inflation.
The Australian dollar continued to be under pressure, especially against previously weaker currencies such as the Euro, which was up +3.6% and Pound Sterling up 2.3%. The US Dollar was largely flat against the Aussie, as both currencies weakened during the quarter.
Portfolio Performance
The portfolios had weaker returns over the quarter, driven largely by weakness in the US and Australian share markets. Defensive assets such as fixed income securities provided strong ballast to portfolios, providing a positive return when many markets were weaker and showing the importance of diversification. Long term returns remain strong, notably from exposures to global shares.
Portfolio changes during the quarter
There were no portfolio changed for the March Quarter
Outlook
The increasing risk of a global trade war has heightened investor fears of a US recession, leading to a repricing of global financial markets to reflect higher risk premiums. Although consensus forecasts still predict that the US will avoid a recession this year, persistent economic uncertainty could impede growth. However, a de-escalation of trade tensions and clearer trade policies could lead to market stabilisation and a potential recovery in risk assets after a significant derating.
In an environment where unsettling headlines often dominate the narrative, investors should not overlook the positive factors that can inform strategic decision-making. Successfully navigating this environment requires a disciplined yet dynamic approach to portfolio management.
