As we navigate the complexities of the financial landscape, it’s important to stay informed about how investment markets are performing. The first quarter of 2025 (January 1 – March 31) presented both challenges and opportunities for investors. In this article, we take a closer look at how investment markets performed over the quarter, and we 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 down -2.8% over the quarter. Negative returns were largely due to poor performance in the finance sector, driven by negative returns from some of Australia’s major banks, which was offset to some degree by a positive contribution from the mining sector, particularly by gold mining companies, as the price of gold continued to surge.
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 in 2024. Key contributors to this include domestic holiday travel, accommodation costs and the annual tobacco excise increase. The RBA reduced the cash rate from 4.35% to 4.10% during the quarter, and the market is currently expecting two or three further rate cuts through 2025.
Housing market: The Australian housing market, as measured by CoreLogic's Home Value Index (HVI), recorded an increase of +0.5% in Q1 2025, reversing a slight decline of -0.1% in the previous quarter. The increase was attributed to buyers responding positively to Australia’s first interest rate cut since the Covid pandemic. In 2024, Australian home values were up +4.9%, adding approximately $38,000 to the median value of a home.
Australian dollar: The Australian dollar (AUD) increased slightly against the US Dollar over the quarter, rising +0.6% from 61.9 to 62.5. The change comes off the back of a sharp drop in AUD towards the end of 2024 that was mainly caused by shifts in US and Australian 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 -6.4% drop in Q1, caused mainly by political and economic uncertainty and the threat of tariffs from the new US administration.
Housing market: Following a flat January, the CoreLogic Home Value Index showed a +0.4% gain in February and a +0.5% gain in March, for a combined +0.9% increase for the quarter, as prices begin to tick up in the wake of recent interest rate cuts. The median property value nationally is now $812,195.
Interest rates: The official cash rate was reduced from 4.25% to 3.75% during Q1 2025, with the market expecting further reductions to around 3.00% through 2025 as inflation comes under control. New Zealand’s economy, which was in recession at the end of 2024, exited recession in Q1 2025 as the economy began to grow again, helped by the recent reduction in interest rates.
United States
Share market: The S&P 500 Index fell by -4.3% in Q1 2025, as share markets became increasingly volatile. Investors sold shares, particularly in US technology companies, as they began to question the valuations of these companies, given recent advances in Chinese technology such as the DeepSeek AI. Fears of tariffs, political uncertainty and slowing economic growth has also contributed to the recent sell-off.
Interest rates: The Federal Reserve kept interest rates on hold at both its Q1 2025 meetings. This was in line with the Fed’s goals of achieving maximum employment and price stability. The Personal Consumption Expenditures (PCE) inflation rate stood at +2.5% at the end of February, while core inflation had eased to +3.1%.
China
The Chinese share market has been an exception to the sell-off seen in Q1 2025, and has performed well, driven by improving Chinese consumer earnings. China's growth rate increased from 4.6% to 5.4% in Q4 2024, exceeding market estimates of 5%. This growth was driven by a front-loading of exports due to concerns about US protectionist policies, consumption-boosting trade-in programs, and monetary easing that made borrowing cheaper. However, analysts caution that this growth is unlikely to be sustainable as structural issues remain, such as the weak property sector and sluggish domestic demand, while ongoing trade tensions with the US are expected to create headwinds for exports.
Although the impact of tariffs on Australia has not yet had a direct impact, a long-term deterioration of the Chinese economy could result in reduced demand for Australian exports, from commodities to food and financial services. This dynamic has contributed to the sharp depreciation of the AUD seen towards the end of 2024, although it has recovered slightly in Q1 2025, rising +0.6% against the USD.
Tariff unveiling and outlook
In the first week of April, President Donald Trump unveiled severe tariffs against most of the US trading partners. From April 5th, universal tariffs of 10% were imposed on imports from all countries, including Australia and New Zealand. Countries with large trade deficits with the US face reciprocal tariffs of up to 50%, with Asian countries particularly hard hit. The volatility continued when on 9th April a 90-day pause on tariffs was announced for most countries, except China. While the situation is evolving, the economic impact is likely to take some time to flow through, depending on the evolution of trade policy and the timing and extent of any fiscal and monetary policy responses.
We continue to monitor the major drivers of markets and their impact on Resolution Life Australasian portfolios. While investing always involves managing uncertainty, the current environment is mired in elevated uncertainty. The best form of defence for portfolios is to continue to be well diversified, with exposure to a range of asset classes that can help during volatile times.
Sources:
1. S&P/ASX 200 Index Performance - ASX
2. NZX 50 Index Performance – NZX
3. S&P500 Index Performance - US
4. Reserve Bank of Australia Monetary Policy - RBA
5. Reserve Bank of New Zealand Official Cash Rate - RBNZ
6. Australian House Prices – CoreLogic
7. NZ house Prices – CoreLogic Home Value Index
What you need to know
Preparation of this document and the opinions expressed in it may involve material elements of subjective judgement and analysis. Unless specifically stated otherwise they are current as of 9 April 2025 and are subject to change without notice. Resolution Life does not make any representation or warranty as to the accuracy, reliability or completeness of information and does not accept any liability or responsibility for any acts or decisions, errors or omissions related to the information in this document.
For Professional Financial Advisers Only – Not for distribution or disclosure to retail or wholesale clients.
The information contained in this document is only for professional financial advisers acting in that capacity and does not contain any financial product advice. Resolution Life Australasia Limited, NZ Company No. 281363, can be contacted via resolutionlife.co.nz/contact-us or by calling 0800 808 267
