Market Key Points
- Global markets closed the year on a mixed but generally steady footing, with every major asset class delivering positive returns over the year for the first time since the COVID-19 pandemic.
- US equity markets were broadly flat, whilst international share markets were broadly positive in December.
- Fixed interest performance was generally negative into year end, largely driven by rising long-term yields.
Australian Equities
Australian equities closed out December on a positive note, with the S&P/ASX 200 Accumulation Index rising 1.3% for the month. Gains were concentrated in the Materials sector, which led the market with a strong 6.7% rise, supported by strength in commodity prices. Financials and Property also delivered modest gains, while Information Technology and Health Care lagged sharply. Smaller companies continued to outperform their larger peers, with the S&P/ASX Small Ordinaries Index up 1.4% in December and an impressive 25.0% over the past year, compared with a 10.3% lift in the broader ASX 200.
Among individual stocks, DroneShield (DRO) rebounded strongly, surging 55.6% after securing several new contracts and reversing its steep decline from the previous month. Resource linked names such as Greatland Resources (GGP), Bellevue Gold (BGL) and IGO (IGO) also benefited from buoyant gold, copper and lithium markets. On the downside, Telix Pharmaceuticals (TLX) fell 26.4% following mixed Phase 3 trial results and ongoing regulatory uncertainty, while Premier Investments (PMV) declined 23.0% after a softer than expected trading update at its AGM.
On the macroeconomic front, the RBA held the cash rate steady at 3.6% in December, noting that inflation risks appear to be tilting to the upside and may take longer to fully assess. Labour market data showed the unemployment rate unchanged at 4.3% in November, though total employment unexpectedly fell by 21,300, missing expectations of a modest increase and reversing the strong gains recorded in the prior month.
Global Equities
Global equities delivered a mixed performance in December, with developed markets slipping 0.9% in AUD terms. US equities were broadly steady, as the S&P 500 dipped just 0.1% but remained up a strong 16.4% over the past year, supported by the Federal Reserve’s December rate cut despite mid‑month volatility.
Across global markets, value stocks outperformed growth, while quality and momentum factors also posted modest gains. Small caps lagged, falling 0.8% for the month. European markets were generally positive, with the UK’s FTSE 100 up 2.2% and Germany’s DAX rising 2.7%. Japan’s Nikkei 225 added 0.2% in December, capping an impressive 26.2% return over the rolling year.
Economic data played a key role in shaping sentiment. The Federal Reserve delivered a widely anticipated 25 basis point rate cut, bringing the policy rate to 3.50–3.75%. However, policymakers remained divided on the future path of rates, with the latest dot plot signalling only one additional cut in 2026 and another in 2027.
Inflation continued to ease, with headline CPI falling to 2.7% in November, its lowest level since July while core inflation softened to 2.6%. US economic growth remained robust, with third‑quarter GDP expanding at an annualised 4.3%, driven by strong consumer spending, exports and government expenditure.
Commodities were softer overall, with the S&P GSCI Index down 1.2% in December. Copper remained a standout performer, surging 10.9% for the month and 21.8% over the past quarter. Gold also continued its upward trend, gaining 1.9% in December and delivering substantial three‑month and twelve‑month returns. Iron ore prices rose 2.6%, while oil declined a further 2.1% amid ongoing concerns about oversupply.
Emerging Market Equities
Emerging markets outperformed their developed market peers in December, with the MSCI Emerging Markets Index (AUD) rising 1.3%. China helped drive the gains, as the CSI 300 rebounded 2.3% for the month, supported by strong performance from chipmakers and technology stocks. Economic data from China showed early signs of stabilisation, with the NBS Manufacturing PMI lifting unexpectedly to 50.1, its first expansion since March and well above expectations. Industrial production grew 4.8% year on year in November, only slightly softer than the previous month, though retail sales weakened notably, slowing to 1.3% and marking the weakest annual growth since late 2022.
Fixed Income
Fixed income performance was generally negative across much of the U.S. and global markets, largely driven by rising long-term yields. U.S. 10-year Treasury yields finished the month 15 basis points higher at 4.17%, whilst the short-end of the curve fell following the rate cut by the Federal Reserve during the month, as members remain in disagreement on the future path of rate cuts.
Japanese government bonds rose sharply again as the Bank of Japan voted unanimously to raise interest rates to 0.75%, the highest level since 1995. The 10-year government bond rose 27 basis points in December, and mid-month reached the highest level seen in the last 17 years.
Domestically, Australian 10-year bond yields increased again, rising by 22 basis points in December, ending the month at 4.74%, as strong inflation data continues to extinguish any thoughts of interest rate cuts in 2026.
Property and Infrastructure
The S&P/ASX 200 A-REIT Accumulation Index rose by 2.0% in December, bringing its rolling annual return to 9.2%. Global real estate equities underperformed, falling by 1.4% during the month, as shown by the FTSE EPRA/NAREIT Developed NR Index (AUD Hedged). Global infrastructure also underperformed, down 1.2% in December, as measured by the S&P Global Infrastructure TR Index (AUD Hedged).
This article contains information first published by Lonsec. Voted Australia’s #1 Research House for 2019.
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