Quarterly economic update: January - March 2025
Share markets were sold down during the March quarter (and even further early in April) in response to developments around the U.S. tariff program. Following two years of leading the market higher, there were significant losses across the large U.S. technology sector, with Alphabet (Google), Tesla and Nvidia all recording significant declines.
In contrast to the U.S. market, a number of European markets posted positive returns over the quarter. Hopes that a German government announcement of a new spending program will be the start of a greater willingness by European authorities to use fiscal stimulus, helped support European markets last month. Additionally, the European share market is generally regarded as being cheaper, more defensive, and more “value” orientated in style than the U.S., all factors which generally provide support in a period of equity market weakness.
Asian share markets delivered mixed performances. Chinese shares delivered a very strong return over the past three months with more supportive financial measures from the government. However, Japanese share markets have declined with the central bank still signalling the need to raise interest rates to limit inflation, while Taiwan was down significantly in line with negative sentiment on the technology sector.
Other asset classes, such as infrastructure and global property, benefitted from an ongoing shift to defensive sectors amidst the uncertainty & confusion emanating from the White House.
Australian equities performed closely in line with the global average over the March quarter, with the S&P ASX 200 Index falling 2.8% (ignoring dividends). The pattern of price movement across sectors was similar to that prevailing on the U.S. market, with technology the weakest sector with a 17.5% decline. Defensive sectors had more support over the quarter, and resources finished the quarter in slightly positive territory, which may have reflected more positive sentiment around the outlook for the Chinese economy.
The outlook and implications for investors
Global share prices have made very strong gains in 2023 and 2024. The enthusiasm for AI and technology have been the key factors supporting global rising share prices. There was also the benefit that with global inflation gradually falling, central banks could continue to make further cuts to interest rates. Typically, a lower interest rate environment should be more supportive of corporate profits and thereby share prices in the long run.
However, global share markets are now being challenged by considerable global political risks. The return of Donald Trump to the White House, and the way he’s communicating his decisions, are generating uncertainty in the markets. There has been an ‘on again - off again’ sequence of tariff announcements with President Trump as part of his negotiating tactics. Clearly Trump’s aggressive policy agenda - higher tariffs, lower US immigration and population growth, more restrictive US fiscal policy with cuts to government jobs and spending, as well as less regulation - is not a recipe for stability. The continuing Russian-Ukraine war and conflict in the Middle East also provides a troubling environment.
As we have seen with share market corrections in the past, stability and good news can lead share market valuations to snap back upwards very quickly – but if and when that occurs remains to be seen. Given these complex considerations, investors should maintain a disciplined and diversified strategy, and stay focused on their long term wealth accumulation or preservation goals, rather than attempting to time the market.
| Asset Class Summary – 31 March 2025 | 1 Year % Total Return |
|---|---|
| Australian Shares | 2.6 |
| Global Shares (hedged) | 7.0 |
| Global Shares (unhedged) | 12.2 |
| Australian Property Securities | -5.4 |
| Australian Bonds | 3.2 |
| Global Bonds (hedged) | 3.7 |
| Cash | 4.5 |
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