Market summary

There was a turbulent start to the June quarter with Liberation Day tariff announcements leading to market turmoil. Tariffs were subsequently deferred for 90 days, lifting investors’ spirits and leading to a surprisingly rapid market recovery and a spate of trade negotiations. Aiding the recovery were positive earnings announcements from tech heavyweights like Nvidia and Meta. Global equity markets made a full recovery (and then some) with the MSCI World Index ending the quarter up 9.5%, led by surging US tech stocks. Emerging Market equities also had a strong quarter with a return of 7.9% led by notable performance from Korea, Taiwan and Brazil. 

Bond markets remained volatile over the quarter. Credit rating agency Moody’s downgraded the rating of US sovereign debt by one notch from Aaa status to Aa1 in mid-May, citing the growing burden of financing the government’s budget deficit and the rising cost of rolling over existing debt in a higher interest rate environment. The downgrade initially spurred a sell off among long-dated US government debt, before recovering at month end. Just days later US Congress passed President Trump’s “One Big Beautiful Bill”, which frontloads growth-enhancing tax cuts partly offset by deferred spending cuts and is projected to increase the US deficit by around $3 trillion over the coming 10 years. Bond markets shrugged off US debt level concerns, however, with the US 10-year yield unchanged for the quarter and bonds posting positive returns.

New Zealand and Australian Equity markets delivered positive returns of 2.8% and 9.5% respectively, with both markets supported by easing global trade tensions, the weakening US dollar and interest rate cuts from their respective central banks.  

Global listed property and infrastructure returned 2.4% and 1.9% respectively during Q2 (both in NZD-hedged terms), underperforming broader equity markets by a wide margin. Falling medium-term interest rates this quarter were tailwinds for both sectors given their higher interest rate sensitivity.

Trans-Tasman equities 

The New Zealand economy presented mixed signals, with robust export growth offsetting rising inflation and higher unemployment. New Zealand’s Q1 2025 GDP (released in Q2) rose by 0.8% quarter on quarter, exceeding expectations. This indicates an ongoing recovery from recession, however more recent declines in confidence indicate that these figures may not reflect the latest economic developments. New Zealand shares rose by 2.8% in Q2, underperforming its Australian counterpart which rose 7.4% (unhedged).

Global equities 

Despite geopolitical tensions and trade wars, overseas shares (hedged) increased by 9.5% in Q2 2025. Overseas shares (unhedged) were up 4.0%, the difference in returns primarily reflecting a weakening US dollar. Magnificent 7 shares (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) experienced a strong quarter, increasing 21%. Renewed optimism around Artificial Intelligence saw the information technology sector being the best performer (up 22.8%). Emerging Market shares (unhedged) rose 4.5%, largely driven Korean and Taiwanese share markets. MSCI (the benchmark indices provider) considered but ultimately decided against including Korea in their developed market indices due to ongoing barriers for foreign investors.

Property and listed infrastructure

The NZX All Real Estate Index benefitted from optimism towards continued OCR cuts by the Reserve Bank of New Zealand, returned 7% over the quarter. The FTSE Global Core Infrastructure 50/50 Index (a common measure of global listed infrastructure) returned 1.9% in NZD hedged terms, while the FTSE EPRA NAREIT Developed Index (a common measure of global listed real estate) returned 2.4% in NZD hedged terms.

NZ bonds and cash 

New Zealand Sovereign Bonds were up across the board in Q2 2025, with the New Zealand 10-Year Government Bond returning 1.5%. Declining interest rates during the period as well as increased demand for ‘safe’ assets amid wider market volatility drove support government bonds. The domestic bond market, represented by the Bloomberg NZ Bond Composite 0+ Yr Index, delivered a return of 1.4% during the quarter. Cash (represented by the S&P/NZX Bank Bills 90-Day Index) returned 0.9% over the quarter.

Global bonds 

President Trump’s ‘Liberation Day’ announcements caused a sharp steepening of yield curves around the world. A temporary tariff pause calmed markets, but concerns over US public finances and a Moody’s downgrade led to renewed upwards pressure in May. In June, market sentiment shifted again in favour of rate cuts in the US, as indications of a weakening labour market prompted policy makers to suggest that rate reductions might be restarted. Global bond markets (measured by the Bloomberg Global Aggregate Bond Index – NZD Hedged) returned 1.3% over Q2.