2025

The sky isn’t the limit for financial markets, and the stars won’t provide guidance or answers. We will keep our feet firmly on the ground, continuing our search for Future Quality ideas, where we believe stock selection will remain the key driver of excess returns.

A key area of focus is the earnings season in August and whether there are signs of recovery. Other focal points are migration trends and developments related to US tariffs. New Zealand companies do export to the US, but in our view it is not difficult for them to find alternative markets. The impact of US tariffs on New Zealand could therefore be limited.

One significant theme in fixed income markets has been bifurcation between the prices of government debt, which have been comparatively low, and the prices of other bonds such as those issued by companies and local authorities. Amid this bifurcation, we expect New Zealand’s interest rates to remain low as inflation eases.

In late 1991, the author moved to Asia as Dresdner Asset Management’s new young economist. Cue lots of earnest work on trade, production and, fortunately, capital flows and monetary variables as well.

US and Japanese central banks held rates steady amid mixed economic signals, with the Fed facing internal dissent and the BOJ turning modestly hawkish. Meanwhile, China appears to be opting for strategic caution. As rising tariffs and uncertain inflation dynamics continue to complicate the global economic outlook, policymakers in key economies are signalling caution over conviction.

Growth assets remain appealing, as we believe that global economic growth will stay resilient despite the ongoing uncertainties. In defensive assets, high yield stands out as it offers higher levels of return than traditional bonds while exhibiting much lower levels of volatility than equities.

As always, we are focused on finding ideas that are supported by the four pillars of Future Quality investing: franchise quality, integrity of management, balance sheet strength and valuation. We expect AI, energy and defence to continue providing attractive investment ideas given the structural changes anticipated in these industries.

The recent Japanese Upper House elections resulted in the ruling coalition losing its majority, leading to market uncertainty. Despite potential challenges in policy-making, ongoing trade negotiations with the US and fiscal discipline negotiations remain key focus areas, impacting Japanese assets and global market dynamics.

According to Wall Street lore, investors should “sell in May and go away”, but June's rally once again reduces the credence of this strategy. Still, the outlook remains uncertain despite improvements in terms of trade policy tensions and ceasefires.

While credit fundamentals and decent demand-supply technicals are supportive, we are wary of trade and geopolitical re-escalation risks. We are therefore inclined to take a more cautious and defensive approach over the near term.