Adviser Connect – February 2025

As we navigate the complexities of the financial landscape, it's important to stay informed about how investment markets are performing. The fourth quarter of 2024 (October 1 - December 31, 2024) presented both challenges and opportunities for investors. In this article, we'll take a closer look at how investment markets performed over the quarter, and we'll highlight some of the key economic factors from across the world that influenced these outcomes.
 

Australia

Share market: The S&P/ASX 200 Index, which represents Australia’s top 200 companies, was up 11.4% for the year, but fell 0.8% over the quarter. Negative returns were largely due to poor performance in the materials sector, with iron ore tumbling by 23% in 2024 from China’s weak construction sector. This was offset partially by the financial sector, which posted strong returns especially amongst Australia’s major banks.

Interest rates: Australia’s inflation rate remained within the Reserve Bank of Australia’s (RBA) target range, but core inflation, which excludes volatile items like food and energy, remained above the target, despite decreasing from 3.6% to 3.2% from Q3 to Q4. Key contributors to this include domestic holiday travel, accommodation costs and the annual tobacco excise increase. The RBA kept the cash rate steady at 4.35% during the quarter, but the market is currently expecting rate cuts to commence in 2025.

Housing market: The Australian housing market, as measured by CoreLogic's Home Value Index (HVI), recorded a slight -0.1% decline in Q4 2024, marking the first quarterly drop in two years. This decline was attributed to high interest rates, cost-of-living pressures and reduced borrowing capacity. In annual terms, Australian home values were up 4.9% in 2024, adding approximately $38,000 to the median value of a home.

Australian dollar: The Australian Dollar (AUD) depreciated by 10.75% over the quarter from 69.4 to 61.9, mainly due to shifts in US interest rate expectations and a negative outlook for the Chinese economy, which has impacted Australia's export sector.
 

New Zealand

Share market: The S&P/NZX 50 Index saw a robust 5.6% gain in Q4 2024, benefiting from supportive monetary easing conditions where the Reserve Bank of New Zealand (RBNZ) cut rates by 1%.

Housing market: The QV House Price Index showed a modest 0.1% increase in national residential property values during the December quarter. The average home value now stands at $902,414, 0.3% lower than at the start of 2024 and 15.2% below its peak from three years ago.

Interest rates: The official cash rate was reduced from 5.25% to 4.25% during Q4, with the market expecting further reductions expected in 2025 as inflation comes under control. New Zealand’s economy has shown signs of weakness, with unemployment rising to 4.8% and retail sales volumes falling due to pressure on household budgets.
 

United States

Share market: The S&P 500 Index rose by 2% in Q4 2024, reflecting resilience in US equities, supported by robust consumer spending, solid corporate earnings and stabilising interest rates. Over the year, the S&P500 delivered strong returns, up 24.5% in USD terms.

Interest rates: The Federal Reserve reduced interest rates by 1% across three consecutive meetings at the end of 2024. This was in line with the Fed’s goals of achieving maximum employment and price stability. The Personal Consumption Expenditures (PCE) inflation rate slowed from 2.8% in 2023 to 2.4% in 2024, while core inflation eased from 3.2% to 2.8%.
 

China

Economic growth: China’s economic growth rate accelerated from 4.6% to 5.4% in Q4 2024, surpassing the 5% consensus forecast. This growth was driven by front-loading of exports due to concerns over US protectionist policies, trade-in programs boosting consumption and monetary easing measures that made borrowing cheaper.

Stimulus and tariffs: China is working to combine tactical policy adjustments with strategic reorientation to achieve balanced economic growth. At the Central Economic Work Conference in December 2024, the government outlined economic priorities for 2025, emphasising boosting domestic consumption and improving investment efficiency. The government is implementing trade-in-subsidy programs, such as those for home appliances and electric cars, to stimulate economic activity. In the face of geopolitical tensions, Beijing is prioritising domestic firms in strategic sectors like technology. The real estate sector continues to face challenges, with high inventory levels in smaller cities suggesting that property prices could face further declines in the years to come.
 

Key themes

The major themes currently being assessed by investors are the adoption of AI and the winners and losers from technology, where interest rates are heading around the world and the impact to economic growth and inflation from the tariff policies being implemented by the current US Administration.

We continue to monitor the major drivers of markets and their impact on Resolution Life Australasia portfolios. Running well diversified portfolios across a range of asset classes that can help navigate various market scenarios remains our main priority.