A year of divergence: Commodities and emerging markets take the lead
The Christmas rally failed to materialise in December for the popular Nasdaq Index, but emerging markets brought home their comeback year with a solid 3.0% rise to extend gains in 2025 to 34.4%. Gold also finished the year strongly, gaining 2.0% in December to record a phenomenal 64.4% rise over the year. The Bloomberg precious metals index returned 80.2% and while gold dominated the headlines it was silver which outperformed, gaining 149.1%.
The NZ market again lagged with a 0.4% gain in December and a paltry 3.3% rise over the calendar year. Notably the NZX 50 index has risen a mere 0.7% p.a. over the past 5 years.
Australia has fared better, with a 1.3% gain in December and 10.6% over the year. While this is reasonable, it does belie the underlying performance of the broader market in which materials dominated, rising 36.2% (including dividends), well ahead of the next best sector, industrials (+13.9%) and Telco’s (+8%). It wasn’t the big mining names of BHP and Rio Tinto driving the stellar gains in the materials sector but the gold producers – Pantoro Gold up 220%, Resolute Mining 206%, Evolution Mining 164% and Newmont Corp 152%. Elsewhere, Lynas Rare Earths gained 94% though was 40% off its October highs.
The worst performing sector was Healthcare (-24.9%), dragged lower by former market leader CSL, which fell -39%. The IT sector was also much weaker, falling -20.8% led by falls in Wisetech and Xero.
The US still dominates the decade, but not every year
For traditional portfolios 2025 was a very strong year, with gains across all major asset classes, including commodities, global real estate, and global bonds.
US equities delivered gains of 17.9% (S&P500), 21.1% (Nasdaq) but were outshone by other regions. Notable winners were Korean equities which rose 100.7% and Latin American markets also shone after a difficult 2024, and with the benefit of stronger currencies, rose 55.7% in USD terms.
In Europe, currencies also played an important role in determining investment returns, with the GBP rising 7.6% and the Euro 13.4% against the USD. In local currency the UK market rose 21.5% and European equities 20.4%, which translated to +30.7% and +36.5% respectively in USDs.
The table below shows the returns from major stock market indices over the last ten years. While the US may have lagged in 2025, the last ten years have been very much their decade.
Ten year returns on the S&P500 have averaged 12.8% p.a. versus Japan’s 10.2% p.a. Australia’s 9.5% p.a. Europe’s 8.8% p.a. NZ’s 7.9% p.a. and the UK’s 4.8% p.a. Such dominance has seen the S&P500 rise 276% versus Japanese equities’ 191% and NZ equities’ 131%.
Interest rates, credit and the outlook for 2026
It is interesting to note that there are only two years when the S&P500 fell, 2018 and 2022, and in those years essentially every other market fell. This speaks to the question of diversification. While regional equity markets diverge considerably year on year, there are periods when they all fall together. This is not random chance but occurs when certain key macro factors impact on equity valuations across the board.
The most important of these is interest rates. In 2018 and 2022 we saw central banks raising rates while in the past three years, interest rates have eased. This year we also saw equity market weakness in April when tariffs were introduced, as investors factored in potential inflation affects. These didn’t materialise and the Fed lowered interest rates three times (75bps) in the second half of the year.
Global bonds rose despite fears of tariff induced inflation early in the year, and central banks continued to lower interest rates leading to a strong year when measured in USDs (8.2%). NZD returns in global bonds were much lower at 3.7% and are still negative over 5 years.
The outlook for interest rates in 2026 remains supportive of equity markets. Powell will soon be replaced as Fed Chair, and it is likely his successor will favour lower rates. Europe interest rates are on hold, but lower inflation prints give them room to move should growth undershoot.
Bloomberg’s consensus growth projections show steady growth for major developed economies.
Credit markets are seeing strong growth, particularly in investment grade, driven by the surge in issuance tied to AI infrastructure and data centre build-outs, with Alphabet, Meta, Oracle, Microsoft and Amazon together raising nearly US$100bn between them.
Twenty Four Asset Management believe the risk-reward in credit generally remains healthy but steer investors more towards investment grade.
In regard to private credit, as is typical late in credit cycles, defaults are on the rise but appear to be typically correlated to other areas of the credit market such as high yield, where defaults are also occurring albeit below historical averages. As they point out, and we concur, loss rates in private credit must be looked at in the context of the risk premium this type of exposure offers.
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