Asset class summary

Asset class returns in Australian dollars – periods to 31 December 2024

Past performance is not a reliable indicator of future performance.

Sources: Australian shares - S&P/ASX 300 Total Return Index; Global shares (hedged) - MSCI All Countries World (A$ hedged, Net); Global shares (unhedged) - MSCI All Countries World in A$ (Net); Emerging markets - MSCI Emerging Markets in A$ (Net); Australian property securities - S&P/ASX 300 A-REIT Accumulation Index; Global property securities - FTSE EPRA/NAREIT Developed (A$ hedged, Net); Global listed infrastructure - FTSE Global Core Infrastructure 50/50 (Hedged $A); Australian bonds - Bloomberg AusBond Composite 0+ Yr Index; Global bonds (A$ hedged) - Barclays Global Aggregate (A$ hedged, Gross); Global high yield bonds (A$ hedged) - Barclays US High Yield Ba/B Cash Pay x Financials ($A Hedged); Australian inflation-linked bonds - Bloomberg AusBond Inflation Government 0+ Yr Index; Cash - Bloomberg AusBond Bank Bill Index; AUD/USD - WM/Reuters Daily (4 pm GMT).

Key events in global markets over the last three months to December 2024

Global shares (hedged) increased by 1.2% over the quarter given persistent inflation and fading hopes for US interest rate cuts over the coming year. Concerns over the escalating conflicts in the Middle East and Ukraine also weighed on share prices. Global shares (unhedged) recorded an exceptionally strong 10.9% return given the sharp decline in the Australian dollar.

Wall Street’s benchmark S&P 500 Index made historic highs and delivered a solid 2.3% quarterly return in local currency terms. The exuberant optimism on Artificial Intelligence (AI) and technology shares are the tailwind behind Wall Street’s ascent. Donald Trump’s election as the next US President in November is also seen as positive for US shares given the potential for lower corporate taxes and extension of personal tax rate cuts.

European shares disappointed with a negative return despite lower inflation and the European Central Bank (ECB) cutting interest rates. Slow economic growth and modest corporate profits are weighing on Europe.

Asian share markets delivered mixed performances. Chinese shares have slipped back in the past three months after an extraordinary recovery in September. Investors have once again become cautious about China’s prospects given the struggling property market. However, Japanese share markets have made strong gains given that the Japanese central bank has paused on raising interest rates in recent months.

Global bonds (hedged) posted a weak -1.2% quarterly return. More persistent inflation in the United States and a more cautious outlook for 2025 from the US central bank has diminished expectation for lower interest rates in 2025. Australian bonds delivered a weak return (-0.3%) given a more cautious assessment of the prospects for lower global interest rates in the coming year.

Key events in Australia over the last three months to December 2024

Australian shares delivered a weak quarterly return of -0.8%. The resources sector was the weakest link with a disappointing -11.2% return given more concern over China’s growth prospects which resulted in lower commodity prices. There was also a disappointing return of -6.1% for property securities given higher bond yields. There were some pockets of strength with solid gains for financial sector shares (5.9%), industrials (3.2%) and communication services (2.2%). However, these gains were not enough to compensate for the broader market weakness.

Australia’s economy continued to display subdued economic activity. The negative impact of high consumer prices, mortgage interest rates and rents continued to squeeze budgets. Australia is regrettably in a ‘per capita’ recession where annual population growth was greater than economic growth in the year to September. Yet there has been some more encouraging news in terms of solid jobs growth and milder inflation. Australia’s annual inflation rate declined to 2.1% in October. This moderation in price rises reflects the benefit of government electricity subsidies. According to the Australian Bureau of Statistics, “Electricity prices fell 35.6% in the 12 months to October”. Given the "softer than expected" Australian economic activity and milder inflation results, the RBA appears more open to cutting interest rates in 2025 judging by their commentary from the December 2024 meeting.

Global prospects

Global share prices made very strong gains in 2024 despite some challenges. The enthusiasm for AI and technology were the key factors supporting global rising share prices. There was also confidence that with inflation gradually falling across the world, central banks would make further cuts to interest rates. A lower interest rate environment should be more supportive of corporate profits and thereby share prices in the long run.

However, these exuberant expectations may be challenged by considerable global political risks in 2025 with the continuing Russian-Ukraine war as well as the intensifying conflict in the Middle East. The return of Donald Trump to the White House in January 2025 could also generate concerns for the global economy with the potential imposition of large tariff increases for America’s trading partners (particularly China and Europe) as well as the threatened deportation of illegal immigrants.

Given these complex and significant risks, investors should maintain a disciplined and diversified strategy.