Key market movements - December 2025

International shares

+3.2% (hedged to NZD)

+3.9% (unhedged)

Developed markets posted good returns, underpinned by continued strength in the technology sector and further monetary policy easing in the US.

US shares gained in spite of the longest US government shutdown on record and weak employment data. With interest rate cuts and AI enthusiasm helping to maintain positive share market sentiment, questions about the high valuation of technology companies saw other sectors start to come to the fore by the end of the year.

European shares had a positive quarter and major benchmark indices finished the period near multi-year highs. Economic conditions across the Eurozone remained mixed, with weak manufacturing activity being outweighed by strength in the services sector, leading to a small overall expansion in business activity. With regional inflation easing and the European Central Bank keeping interest rates unchanged, the growth outlook improved, boosting investor confidence.

The UK share market outpaced its European peers over the quarter, with performance being led by large internationally focused companies in financials, mining, defence and other commodity-linked sectors. These areas benefitted from strong global demand, increased commodity prices and a slightly weaker Great British pound.

The Japanese share market extended its rally, with the Nikkei 225 up +12.0% in local currency terms in the quarter. The election of Sanae Takaichi as Prime Minister in October and the formation of a coalition government between the Liberal Democratic Party (LDP) and the Japan Innovation Party (JIP), were interpreted as signs of greater political stability and more proactive fiscal stimulus. The Bank of Japan raised interest rates in December (their second such hike in 2025) and signalled the possibility of further hikes in 2026. The confidence of the central bank added to optimism about Japan’s economic growth and supported local share prices.

Despite another volatile year, investors were rewarded for their discipline with both NZD hedged and unhedged indices advancing around +18% for the year.

Source: MSCI World ex-Australia Index (net div.)

 

 

Emerging markets shares

+5.5%

Emerging markets (EM) shares had another strong quarter, outperforming the broad returns from developed markets. Significant impetus for this came from the technology-oriented markets of Korea and Taiwan.  

Korea was the best performing share market in the EM Index for the quarter (the KOSPI Index up +23%), benefitting from strong demand for AI memory technology and industrial production, as well as a new trade agreement with the US that involved tariff reductions and major direct investment. Taiwan was similarly strong, driven by sustained investor appetite for technology companies throughout the quarter, particularly those related to the AI theme such as cornerstone Taiwan Semiconductor Manufacturing Company Limited (+19%).

Latin American share markets also generally performed well. The Chilean market was up strongly, supported by strength in commodity prices. Brazil also finished ahead of the broader EM Index, despite a mixed macro backdrop and political uncertainty ahead of the 2026 presidential election.

Having performed well for much of 2025, the final quarter saw the Chinese share market give back some gains. Softer macroeconomic data and heightened concerns about ongoing property market weakness in China, particularly following the near default in December of the country’s largest property developers, weighed on market sentiment.

Despite this Chinese weakness the Emerging markets asset class advanced +5.5% for the quarter closing out an impressive +29.8% year.

Source: MSCI Emerging Markets Index (net div.)

 

 

New Zealand shares

+2.0%

New Zealand shares moved higher in the fourth quarter, with the S&P/NZX 50 Index (gross with imputation) setting 9 new all-time highs in October and November after achieving new marks only 8 other times in the last 5 years. The index closed the year near its all-time high, up +2.0% on the quarter, and +4.1% for the year.

The New Zealand market was up on the back of a still positive global outlook, but local economic indicators remained weak. Without the local index having the same level of AI-related exposures to help drive performance, returns from domestic shares generally lagged global peers.

Within the top 50 companies, the best returns were found outside the top 20 companies, with SkyCity Entertainment, Sanford and Oceana Healthcare producing quarterly returns of +36.4%, +34.7% and +33.3% respectively. For SkyCity, this represented a welcome lift after a difficult five-year performance with Covid, reduced visitor numbers and a weaker domestic economy all impacting discretionary spending. For Sanford, it reflected the continuation of a strong profit turnaround under CEO David Mair.

The quarter wasn’t quite so rosy for software firms Vista Group and Gentrack. Vista continues to struggle to return to profitability while focusing on scaling its cloud-based platform to modernise cinema operations. Gentrack reported improving revenue across both its utilities and airports divisions, however this was not enough to arrest its share price decline, which has been trending downward since late 2024.   

Source: S&P/NZX 50 Index (gross with imputation credits)

 

 

Australian shares

+0.5%

The Australian share market underperformed global counterparts, with the S&P/ASX 200 Index posting a -1.0% return in local currency terms.

Companies outside the top 100 generally fared best, with the S&P/ASX Small Ordinaries Index delivering a +1.8% return, while the Emerging Companies Index posted another strong quarter with a +8.3% gain. To put these returns in perspective, the S&P/ASX 100 Index, which comprises the largest 100 Australian companies, achieved a less flattering -1.2% result. This divergence in returns can, in part, be attributed to the higher weight of technology companies within the Australian small and mid-capitalisation indices.  

Australia's economy continues to perform solidly. Although the Reserve Bank of Australia (RBA) cut interest rates three times earlier in the year, a tight labour market, rising wages and persistent but easing inflation pressures kept the RBA on the sidelines in the final quarter.

The materials sector was the standout sector over the quarter, delivering a +13.5% return. This was thanks in large part to an outstanding +20.3% return delivered by market heavyweight Rio Tinto. Reports surfaced in late December about preliminary buyout and merger discussions between Rio Tinto and Swiss multinational Glencore, which could create the world's largest mining company. Aside from small gains also delivered by the industrials and energy sectors, it was “red ink” everywhere else, as the broad market was slightly weaker over the quarter.

With the Australian dollar a little stronger against the New Zealand dollar over the quarter, reported returns to New Zealand investors were around +1.5% higher than the underlying Australian index returns for the quarter, completing a strong +15.6% year.

Source: S&P/ASX 200 Index (total return)

 

 

International fixed interest

+0.7%

There was a marked divergence across global government bond markets during the final quarter of 2025. Despite volatility, UK gilts were the notable outperformer. The November budget in the UK was well received, as the government announced a larger-than-expected fiscal headroom and reduced expectations of future borrowing needs. The Bank of England cut its base rate by -0.25% at its December meeting in what was a close (5-4) vote. This contributed to the UK 10-year bond yield declining from 4.70% to 4.47% over the quarter, delivering strong gains.

Returns were more muted in US Treasury bonds. The US yield curve steepened, with yields rising in very long maturities, but falling in the shorter date ranges. The US Federal Open Market Committee cut interest rates by -0.25% when it met in October and repeated the move in December, taking the Federal Funds rate to 3.50% - 3.75%. Following the reopening of the US government, delayed labour market data suggested a moderation - but not a collapse - in labour demand, with the low-hire, low-fire trend continuing. Despite yield volatility during the quarter, the yield on the US 10-year Treasury bond closed the quarter as it began, at 4.15%.

In contrast, Japanese government bonds experienced a significant selloff, with yields rising to multi-decade highs. After being elected Prime Minister, Sanae Takaichi announced a 21.3-trillion-yen fiscal stimulus package. The size of the package raised investor concerns over Japan’s already substantial debt burden at a time when interest rates are rising. The Bank of Japan delivered a +0.25% rate hike in December, taking the policy rate to 0.75%. In this environment, the Japanese 10-year government bond yield lifted from 1.65% to 2.08% over the quarter, causing losses for investors in these bonds.  

The FTSE World Government Bond Index 1-5 Years (hedged to NZD) was up +0.7% over the quarter, while the broader Bloomberg Global Aggregate Bond Index (hedged to NZD) rose +0.4%. Both indices end the year up around +4%.

Source: FTSE World Government Bond Index 1-5 Years (hedged to NZD)

 

 

New Zealand fixed interest

+0.2%

The Reserve Bank of New Zealand (RBNZ) delivered a -0.50% interest rate cut in October, followed by an additional -0.25% cut in November, bringing the Official Cash Rate (OCR) down to 2.25% after it started the year at 4.25%.

Lower than expected growth, weakening business confidence and muted wage growth continued to weigh on the New Zealand economy through the year. However, after seemingly playing ‘catch-up’ with a total of -0.75% of interest rate cuts in the fourth quarter, the RBNZ now believes the risks to the inflation outlook are evenly balanced. This means, in it’s view, that the next rate change could either be up or down.

As it happens, decisions on the future direction of interest rates will fall under the leadership of new Reserve Bank Governor, Dr Anna Breman, who started her five-year term on 1 December. The new Governor’s first act was to provide additional market clarification following the November release, stating that if economic conditions evolve as expected, the OCR is likely to remain at 2.25% for some time. This provided clear push-back to financial markets, which had begun pricing-in the prospect of renewed interest rate hikes to occur in New Zealand in 2026.

On the back of a mixed global bond market, the New Zealand 10-year bond yield rose over the quarter, moving from 4.21% to 4.53%.

The S&P/NZX A-Grade Corporate Bond Index gained +0.2% for the quarter, while the longer duration but higher quality S&P/NZX NZ Government Bond Index declined by -0.3%. Both indices closed the year up around +5%.

Source: S&P/NZX A-Grade Corporate Bond Index

 

Table 1: Asset class returns to 31 December 2025

Asset class	Index name	3 months	1 year	3 years	5 years	10 years
International shares	MSCI World ex Australia Index (net div., hedged to NZD)	+3.2%	+18.1%	+21.0%	+12.5%	+12.2%
	MSCI World ex Australia Index (net div.)	+3.9%	+17.8%	+25.4%	+17.4%	+14.2%
Emerging markets shares	MSCI Emerging Markets Index (gross div.)	+5.5%	+29.8%	+20.3%	+8.9%	+10.3%
New Zealand shares	S&P/NZX 50 Index (gross with imputation credits)	+2.0%	+4.1%	+6.5%	+1.5%	+8.9%
Australian shares	S&P/ASX 200 Index  (total return)	+0.5%	+15.6%	+14.3%	+11.6%	+10.2%
International fixed interest	FTSE World Government Bond Index 1-5 Years (hedged to NZD)	+0.7%	+4.0%	+4.4%	+1.5%	+2.1%
	Bloomberg Global Aggregate Bond Index (hedged to NZD)	+0.4%	+3.7%	+4.4%	-0.1%	+2.3%
New Zealand fixed interest	S&P/NZX A-Grade Corporate Bond Index	+0.2%	+5.5%	+6.6%	+1.9%	+3.4%
New Zealand cash	New Zealand One-Month Bank Bill Yields Index	+0.6%	+3.3%	+4.7%	+3.4%	+2.5%

Unless otherwise specified, all returns are expressed in NZD. We assume Australian shares and emerging markets shares are invested on an unhedged basis, and therefore reported returns from these asset classes are susceptible to movement in the value of the NZD. Index returns are before all costs and tax. Returns are annualised for time periods greater than one year.