Economic Update - October 2025

September capped off a quarter of positive returns across most major asset classes, as easing trade tensions and a global focus on artificial intelligence (AI) buoyed investor sentiment. However, volatility persisted, with sector performance diverging sharply and macroeconomic signals remaining mixed.

Key Highlights

• Global technology stocks—especially those linked to AI dominated headlines and drove much of the positive momentum.

• Emerging markets outperformed developed markets for the third consecutive quarter, led by China’s “New Economy” sectors.

• Australian equities saw a modest pullback, with the S&P/ASX 200 Accumulation Index down 0.8% for the month, as nine out of eleven sectors finished lower.

Sector Performance: The Ups and Downs

Australian Equities

• Materials (+6.1%): The standout sector, powered by surging commodity prices—especially gold, copper, and iron ore. Gold mid-caps like Regis Resources and Bellevue Gold soared over 30% in September, driven by an 11.9% jump in gold prices.

• Energy (-9.8%): Led the declines, as expectations of rising supply and softening demand weighed on sentiment. The collapse of the Santos takeover further pressured the sector.

• Consumer Staples (-4.4%) & Health Care (-4.1%): Both sectors faced headwinds from cost pressures and cautious consumer spending.

• REITs (-3.1%): Broke their upward trend, reflecting concerns about higher interest rates and structural challenges in office property.

• Small Caps (+3.4%): Benefited from capital rotation into resource stocks, outperforming large caps.

Macro Influences: The Reserve Bank of Australia (RBA) kept rates steady at 3.60%, with inflation ticking up to 3.0%—mainly due to housing costs. Unemployment remained stable at 4.2%.

Global Developed Markets

• US Equities (+3.5%): Hit record highs, fuelled by a 25bps Fed rate cut and robust AI-driven tech earnings. Growth and quality stocks outperformed value, while small caps lagged.

• Europe: Mixed results—UK’s FTSE 100 rose 6.7%, while Germany’s DAX dipped slightly. Geopolitical and economic news drove volatility.

• Japan (+5.2%): Strong gains on the back of a weaker yen, easing inflation, and optimism in tech.

Macro Influences: US inflation slowed to 2.9%, but labour market data showed signs of cooling. The first Fed rate cut of 2025 signalled a shift towards more accommodative policy.

Emerging Markets

• Emerging Markets (+5.8%): Outperformed developed peers, with China rallying on policy support and improved sentiment. However, China’s economic data remained mixed, with manufacturing still contracting and consumer demand soft.

• India: Growth stagnated after a strong 2023, but recent tax reforms and expected rate cuts could boost consumption in 2026.

• Taiwan & South Korea: Tech-heavy markets benefited from global AI trends and strong earnings momentum.

Macro Influences: Policy support in China and robust “New Economy” sectors (IT, Healthcare, Consumer) drove double-digit earnings growth, while traditional sectors like Real Estate and Industrials lagged.

Property & Infrastructure

• Australian REITs (-3.1%): Weighed down by higher rates and office sector challenges, though subsectors like aged care and data management showed resilience.

• Global Real Estate (+0.9%): Continued to post gains, with attractive valuations in select areas.

• Global Infrastructure (+1.5%): Benefited from lower policy rates and healthy fundamentals.

Fixed Income

• Australian Bonds: Yields edged up, but remain attractive for defensive positioning. The RBA’s steady hand and a likely smaller budget deficit support the outlook.

• Global Bonds: US policy uncertainty and Japan’s ongoing rate hikes create headwinds, but valuations are improving.

• Commodities: Gold prices surged, oil slipped on oversupply concerns, and copper rallied after supply disruptions.

Looking Ahead: What’s Driving Markets?

• Interest Rate Policy: Central banks are shifting towards rate cuts as inflation moderates, but remain cautious due to lingering price pressures.

• AI & Technology: Continued innovation and investment in AI are reshaping earnings and sector leadership, especially in the US and Asia.

• China’s Recovery: The sustainability of China’s rebound beyond tech and consumer sectors remains a critical question for global growth.

• Geopolitical Risks: Trade tensions, tariffs, and political uncertainty (notably in the US and Europe) are key risks to monitor.

• Valuations & Earnings: Elevated valuations in some markets require earnings growth to materialise, especially in Australia and the US.

While the September quarter delivered gains for diversified investors, the path ahead is likely to remain bumpy. Staying diversified, focusing on quality, and keeping an eye on macro trends will be key to navigating the next phase of the market cycle.

As always, if you have any questions or require a review of your investments, please don't hesitate to contact us.

Thanks to our research partners at Lonsec for assisting with the preparation of this Economic Update.