Global markets

Global equity markets delivered a mixed but constructive month in July as investors became increasingly selective about where they were willing to allocate capital. While the global economy continued to demonstrate remarkable resilience, market leadership shifted away from simply rewarding artificial intelligence investment and toward businesses able to demonstrate those investments were translating into tangible revenue and earnings growth. Flash Purchasing Managers' Indices improved across most major economies during the month, with activity strengthening in the United States, Europe, Japan and Australia despite elevated interest rates, geopolitical tensions and ongoing trade uncertainty. This reinforced the view that global growth remains more resilient than many had expected. The MSCI World Index rose 0.5%.

Artificial intelligence remained one of the dominant investment themes, with demand for cloud infrastructure, computing power and semiconductors continuing to exceed expectations. However, investors became far more discerning as valuations rose, rewarding companies delivering strong earnings while becoming less patient with businesses requiring substantial investment today in exchange for uncertain future returns. This marks a healthy evolution in markets, where company fundamentals and earnings delivery are once again becoming more important than future potential alone.

Inflation also remained a key market consideration. Energy prices were volatile throughout the month as developments in the Middle East periodically pushed oil prices higher. While economic activity has remained solid, the risk of higher energy costs feeding into broader inflation has kept central banks cautious, given the uncertainty around the US/Iran conflict, and subsequently contributed to ongoing uncertainty around the future path of interest rates.

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United States markets

US equities delivered mixed returns during July. The S&P 500 eased 0.1% while the Nasdaq declined 3.2%, although both indices remain up around 9% year-to-date. In contrast, more traditional sectors generally outperformed as investors rotated toward companies offering stronger near-term earnings visibility and more attractive valuations. The Dow Jones Industrial Average rose 0.3%.

The US economy continued to display remarkable resilience. Economic growth expanded at an annualised rate of 1.5% during the second quarter, while July business surveys pointed to improving momentum, with PMI data reaching an eight-month high. Consumer confidence also improved through much of the month as petrol prices eased from earlier peaks, helping support household spending and broader economic activity.

The housing market also surprised positively. Housing starts rose 19% during June, largely driven by a sharp increase in multifamily construction activity, highlighting that residential investment remains more resilient than many expected despite elevated mortgage rates. However, building permits declined during the month, suggesting developers remain cautious about the longer-term outlook and future supply.

Inflation remains the key challenge facing policymakers. While consumer price pressures eased from the highs seen earlier in the year, inflation remains above the Federal Reserve's target. The central bank's preferred inflation measure, core Personal Consumption Expenditures, remained elevated at around 3.3%, reinforcing concerns that inflation is proving more persistent than expected. The Federal Reserve left interest rates unchanged at 3.5%–3.75% at the end of the month, although several policymakers dissented in favour of further tightening, highlighting concern that inflation risks have not fully disappeared. Rising Treasury yields through the month reflected this uncertainty.

July's earnings season reinforced the market's evolving attitude towards artificial intelligence. Microsoft and Amazon emerged as standout performers, delivering strong cloud-computing growth and demonstrating that AI-related investment is already contributing meaningfully to revenue growth and customer demand. Several other technology companies, however, delivered solid results only to see their share prices decline, reflecting how elevated investor expectations have become after an exceptional rally. With valuations across parts of the technology sector leaving less room for disappointment, the market is increasingly distinguishing between AI potential and AI profitability.

European markets

European markets delivered another positive month. The STOXX50 rose 0.5%, while the FTSE100 gained 3.5%, driven by the mining, financial and defence sectors. Improving economic data helped support investor sentiment, with business surveys reaching their strongest levels in several months and economic growth remaining positive despite elevated borrowing costs and ongoing geopolitical uncertainty. In the UK the appointment of a new Prime Minister was also welcomed by markets, with investors looking for greater policy stability and measures aimed at supporting economic growth.

The European economy has continued to prove relatively resilient. Consumer spending has remained stable, manufacturing activity has shown encouraging signs of improvement, and labour markets have generally held up well. Lower energy prices during parts of the month were particularly beneficial for Europe given the region's reliance on imported energy, helping ease inflationary pressures and support household spending. While growth remains modest by historical standards, the region has thus far avoided the more pronounced slowdown many economists had anticipated earlier in the year.

Inflation remains above target, however, and higher energy prices during parts of the month reinforced caution among policymakers. The European Central Bank left interest rates unchanged during July but maintained a balanced tone, acknowledging that inflation risks remain elevated and that renewed oil-price volatility could quickly complicate the outlook.

Asian markets

Asian markets delivered mixed performance during July. Japan was one of the weaker major markets, with the Nikkei falling 8.1% as investors took profits following a strong first half of the year and a stronger yen weighed on exporter sentiment. Meanwhile, Hong Kong's Hang Seng Index was among the strongest-performing global markets, rising 13.1%, while Mainland China's CSI300 declined 7.9%.

China's economic recovery remained uneven. Gross domestic product expanded 4.3% during the June quarter, below official growth targets and highlighting the ongoing challenges facing the economy. Weakness in the property sector and subdued domestic demand continue to weigh on confidence and investment, particularly across more traditional industries.

There were, however, several encouraging developments beneath the surface. Industrial production accelerated during June, retail sales improved, and exports remained relatively resilient, supported in part by continued global demand for technology products and AI-related hardware. These improvements helped offset some of the weakness evident elsewhere in the economy.

Investors also became increasingly focused on the prospect of additional government support. Policymakers signalled a willingness to introduce further measures aimed at stabilising growth and restoring confidence, reinforcing expectations that additional stimulus could emerge during the second half of the year. Even so, investor sentiment towards mainland Chinese equities remained cautious given the ongoing uncertainty surrounding the property market and the strength of domestic demand.

Australian markets

Australian equities performed strongly during July, with the S&P/ASX200 rising 2.3%. Investor sentiment was supported by softer-than-expected inflation data and further evidence that the economy remains resilient despite higher interest rates.

The Australian labour market once again exceeded expectations. Employment increased by more than 76,000 positions during June, while the unemployment rate remained steady at 4.4%. The strength of the labour market has been one of the biggest surprises of this tightening cycle, highlighting the economy's ability to absorb higher borrowing costs without a significant deterioration in employment conditions.

Inflation data also provided encouragement. Annual inflation eased to 3.8%, while underlying measures moderated. The softer outcome reduced market expectations that the Reserve Bank of Australia would need to raise interest rates further in the near term. Consumer confidence stabilised as inflation concerns eased, while business conditions remained relatively healthy, supporting expectations that economic growth can continue without additional monetary tightening.

Overall, Australia continues to demonstrate that while growth has moderated, the economy remains resilient. Strong employment, easing inflation and stable business conditions have provided a constructive backdrop for investors, even as policymakers remain cautious about declaring victory over inflation.

New Zealand markets

The New Zealand market continued to perform well during July, with the NZX50 Gross Index rising 0.6% to surpass 14,000 points for the first time. The milestone came despite a mixed domestic economic backdrop and serves as a reminder that share markets typically look ahead, reflecting expectations for future economic conditions rather than current challenges.

The economy continues to display a clear two-speed dynamic. Export-focused industries remain an important source of resilience, supported by strong global demand for agricultural products and a weaker New Zealand dollar, which has boosted offshore earnings. Manufacturing activity strengthened during the month, while tourism continued its recovery, with international visitor arrivals reaching around 93% of pre-pandemic levels.

By contrast, domestically focused sectors continue to face more challenging conditions. Retail spending remains subdued, parts of the services sector are still under pressure, and households remain cautious despite improving confidence. The housing market has also yet to regain meaningful momentum, reflecting the ongoing impact of higher borrowing costs.

Inflation accelerated during the June quarter, with annual consumer price inflation rising to 4.1%, its highest level in two years. While much of the increase reflected higher fuel prices earlier in the year, underlying inflation pressures also remained broader than expected. The result prompted the Reserve Bank of New Zealand to raise the Official Cash Rate, a move that many had viewed as unlikely only a few months earlier.

Encouragingly, confidence indicators improved significantly during July. Consumer confidence rose to its highest level in five months, while business confidence strengthened sharply. Firms reported improving activity expectations, stronger export demand, rising employment intentions and increased investment plans, suggesting the economy may be displaying greater resilience than many had anticipated.

Several corporates also reported improving trading conditions. Mainfreight delivered an encouraging trading update showing stronger customer activity, improving freight volumes and a sharp increase in profitability. As a business with significant exposure to global trade flows, Mainfreight's improving outlook also provides an encouraging read on broader economic conditions, both domestically and internationally.

Portfolio positioning

July reinforced the importance of maintaining a disciplined and selective investment approach. Artificial intelligence remains one of the most compelling long-term investment themes globally, and demand for cloud infrastructure, semiconductors and computing capacity continues to exceed supply. However, markets are increasingly rewarding companies delivering strong earnings while becoming less forgiving of those where expectations have run ahead of fundamentals.

This environment continues to favour active management and careful stock selection. Rather than simply following market momentum, our investment team remains focused on identifying high-quality businesses with sustainable competitive advantages, attractive long-term growth prospects and sensible valuations. As market leadership broadens beyond the largest technology companies, we believe maintaining a diversified portfolio and remaining disciplined around valuation will become increasingly important.

Looking ahead - market outlook

Markets now appear to be entering the next phase of the cycle. Economic growth has remained more resilient than expected, but investors are becoming increasingly selective as valuations rise and central banks continue to balance inflation against growth.

Developments in the Middle East will continue to be closely monitored, as any renewed disruption to energy markets could quickly change the outlook for inflation and global growth. In the United States, investors will continue to watch inflation, labour-market and growth data closely for further clues on the path of interest rates, while markets will also be focused on whether AI-related investment continues translating into sustainable revenue and earnings growth.

China remains another important area to watch. Investors will be looking for further policy support aimed at strengthening domestic demand and stabilising the property sector, both of which will have important implications for regional growth and global commodity demand.

The broader investment narrative remains intact. Economic growth across much of the world has proven more resilient than expected, while long-term trends such as artificial intelligence, digital infrastructure and rising computing demand continue to create significant opportunities. July demonstrated that markets are entering a more mature phase of the cycle, where execution, earnings delivery and valuation discipline matter more than promises alone. For long-term investors, this is likely to be a healthy development and reinforces the importance of maintaining a diversified portfolio, staying focused on fundamentals and taking a long-term approach to investing.

Global markets

Global equity markets delivered a strong but occasionally volatile month in August, supported by robust corporate earnings, resilient economic activity and continued enthusiasm for artificial intelligence investment. Investors were periodically unsettled by inflation, government debt and geopolitical concerns, but ultimately remained willing to allocate capital to companies demonstrating dependable earnings growth and clear exposure to long-term investment themes. The MSCI World Index rose 2.5% in US dollar terms over the month.

The global economy continued to perform better than many had anticipated. August Purchasing Managers’ Indices pointed to improving activity across the United States, Europe and Japan, with services remaining an important source of strength and manufacturing showing renewed momentum. Artificial intelligence investment is also becoming increasingly visible in the real economy, supporting demand for semiconductors, data centres, power infrastructure, networking equipment and advanced manufacturing capacity.

Bond markets also became an important focus during the month after the US Treasury announced a significant expansion of its longer-dated bond buyback programme. The move was intended to improve liquidity and smooth conditions in parts of the Treasury market, but it also reignited debate around America's growing fiscal deficit and debt burden, which has now surpassed US$40 trillion. Investors responded by pushing the US dollar lower and driving gold prices sharply higher as concerns around fiscal sustainability and government borrowing requirements returned to the forefront.

Artificial intelligence remained the dominant structural investment theme. Early in the month, strong results from Microsoft, Amazon, AMD and Caterpillar demonstrated that AI spending is benefiting not only semiconductor and cloud-computing companies, but also businesses supplying the machinery, energy systems and physical infrastructure required to construct data centres. Later, Nvidia reinforced confidence in the theme by reporting rapid revenue growth and providing an exceptionally strong outlook, triggering a broad rally across semiconductor and AI-related companies.

However, August also highlighted that markets are becoming more selective. Investors rewarded companies able to convert investment into revenue, earnings and cash flow, while remaining less patient with businesses whose spending had yet to produce a clear commercial return. This increasingly discerning approach represents a healthy evolution in the AI investment cycle, with execution and profitability becoming as important as long-term potential.

Inflation and interest rates remained important sources of uncertainty. While energy prices eased during parts of the month and inflation data generally improved, tariffs, supply-chain disruptions and geopolitical tensions continued to complicate the outlook. Recent economic data suggests global growth remains resilient, but central banks remain cautious given inflation is still above target across many major economies.

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United States markets

US equities performed strongly during August. The Dow Jones Industrial Average rose 1.3% the S&P 500 advanced 2.6%, the Nasdaq gained 4.2%. Year-to-date returns remained equally constructive, at 10.7%, 12.3% and 16.7% respectively.

The US economy continued to demonstrate considerable resilience, although the data revealed an increasingly uneven picture. August business surveys were particularly strong, with the composite PMI increasing from 54.5 to 56.0, its highest level since April 2022. Services activity accelerated, while manufacturing remained supported by solid demand despite tariffs, shipping delays and supply constraints. The surveys were consistent with a meaningful acceleration in third-quarter economic activity from the 1.5% annualised growth recorded in the second quarter.

Second-quarter GDP was confirmed at an annualised rate of 1.5%, but the underlying composition was stronger than the headline suggested. Consumer spending was revised higher and business investment increased, while an important measure of underlying domestic demand grew at its fastest pace in more than three years. This reinforced the view that the US economy remains in relatively good shape despite elevated interest rates.

The consumer picture was more mixed. Retail sales declined 0.6% in July and consumer confidence weakened, suggesting some households are becoming more cautious. However, corporate results from Home Depot, Walmart, Target and Gap indicated that spending has not collapsed. Instead, consumers appear increasingly selective, prioritising value and essential purchases while delaying larger discretionary commitments. Elevated mortgage rates also continued to weigh on housing turnover and major renovation activity.

Inflation data provided some encouragement during the month. Consumer prices rose just 0.1% in July, while producer prices were flat. The softer readings initially reduced expectations of another near-term Federal Reserve rate increase. However, the Fed’s preferred inflation measure remained elevated, with annual headline Personal Consumption Expenditures inflation at 3.7% and core inflation at 3.3%. This left policymakers with limited scope to signal that the inflation challenge had been resolved.

Federal Reserve Chair Kevin Warsh reinforced this cautious approach at Jackson Hole, the closely watched annual central-bank symposium where policymakers often use speeches to communicate their views on the economy, inflation and interest rates. Rather than providing explicit guidance about the next interest-rate decision, he encouraged investors to focus on incoming economic data and warned that recent improvements did not yet demonstrate a decisive change in the underlying inflation trend. Bond yields rose following the address as markets interpreted the message as modestly hawkish.

The broader earnings season was also highly supportive for markets. With almost all S&P 500 companies having reported, approximately 86% exceeded earnings expectations and 77% exceeded revenue forecasts. The blended earnings growth rate for the second quarter reached 52%, representing the strongest earnings growth since the post-pandemic recovery period in 2021. While artificial intelligence remained a key driver of profit growth, the strength of earnings was evident across a broad range of sectors, reinforcing confidence in the resilience of corporate America despite ongoing economic and geopolitical uncertainties.

European markets

European equity markets produced mixed returns during August. The EURO STOXX 50 rose 1.0%, while the FTSE 100 declined 0.4%. Year-to-date, the indices remained up 10.9% and 9.0% respectively.

Economic activity showed encouraging signs of improvement. Eurozone business surveys rose to their highest level since November, with manufacturing recording its strongest expansion in more than four years. Germany was an important contributor to the improvement, while investment associated with technology equipment and AI-related infrastructure provided additional support to industrial activity.

The United Kingdom also continued to grow, although at a more subdued pace. Second-quarter GDP expanded 0.4%, down from 0.6% in the first quarter, as higher energy costs and Middle East-related disruption weighed on activity. Services remained relatively resilient, but the region continued to face elevated borrowing costs and cautious consumer demand.

Inflation remains the principal challenge for European policymakers. Energy costs, tariffs and supply disruptions continued to place upward pressure on prices, limiting the ability of central banks to contemplate rapid policy easing. The environment therefore remains one of modestly improving growth but persistent inflation uncertainty, favouring companies with pricing power, resilient margins and dependable cash flow.

Asian markets

Asian markets delivered mixed returns during August. Japan remained one of the strongest major markets, with the Nikkei 225 rising 3.0% during the month, and extending its year-to-date gain to 31.7%. Mainland China’s CSI 300 gained 0.8%, while Hong Kong’s Hang Seng Index declined 1.2%.

Japan continued to benefit from a weaker yen, improving export demand and investment in technology-related industries. Business surveys rose to their second-highest level in more than three years, while demand for semiconductor equipment, advanced manufacturing and data-centre infrastructure remained supportive. However, inflationary pressures also remained elevated, keeping the possibility of further Bank of Japan policy tightening in focus.

China’s economic recovery remained less convincing. Industrial profit growth slowed to 11.2% in July, its weakest pace of the year, reflecting subdued domestic demand and reduced support from earlier commodity-price gains. Technology-related industries, including electronics and semiconductor manufacturing, continued to perform comparatively well, but profitability across many traditional sectors remained under pressure.

The contrasting performances within Asia reinforced the region’s increasingly differentiated outlook. Japan continues to benefit from export demand, currency support and technology investment, while mainland China remains more dependent on improved domestic confidence and further policy support.

Australian markets

Australian equities produced a positive month, with the S&P/ASX 200 rising 1.1%. As at the end of June the index is up 4.15% year-to-date.

The Australian economy continued to present a mixed but broadly resilient picture. The Reserve Bank of Australia left the cash rate unchanged at 4.35%, but maintained a cautious tone, emphasising that inflation remained too high and that rate cuts were not under consideration. Later in the month, the RBA’s preferred trimmed-mean inflation measure remained at 3.6%, while household spending increased 7% over the year to July. The combination of broad inflation pressures and robust spending reinforced the possibility that further tightening could still be required.

The labour market showed clearer signs of cooling. Unemployment rose to 4.5% in July, employment declined by 15,800 positions and underemployment increased to a two-year high. The softer employment report reduced expectations of another immediate rate rise, but policymakers are likely to require more evidence that inflation and demand are moderating before ruling out further action.

Housing was another area of weakness. Australia’s major banks reported a broad slowdown in mortgage applications following higher interest rates and changes to property tax concessions. Westpac, Commonwealth Bank, ANZ and National Australia Bank all pointed to softer housing demand, particularly among investors. While current bank profitability remains relatively healthy, slower mortgage growth and greater competition for borrowers may make future earnings growth more challenging.

The corporate reporting season nevertheless provided several encouraging signals. BHP reported that copper had overtaken iron ore as its largest earnings contributor for the first time, reflecting growing demand associated with AI infrastructure, electrification and renewable-energy investment. Consumer-related results also suggested household demand remains more robust than many feared. Coles, Woolworths, Scentre Group and Qantas all reported continued spending or demand despite elevated interest rates and cost-of-living pressures. However, consumers remain value-conscious and increasingly responsive to promotions, while housing-related spending is considerably weaker.

New Zealand markets

The New Zealand equity market delivered a modestly positive August, with the S&P/NZX 50 Gross Index rising 1.3%, up 0.9% year to date.

The domestic economy continued to display a mixed but gradually improving picture. Unemployment increased to 5.6% in the June quarter, its highest level in more than a decade, confirming that higher interest rates have continued to weigh on the labour market. However, filled jobs subsequently rose 0.3% in July, while confidence surveys, tourism data and corporate trading updates suggested activity may be stabilising beneath the surface.

Business activity indicators were generally constructive. Manufacturing remained in expansion territory, while the services sector returned to modest growth. Tourism continued to recover, with overseas visitor arrivals reaching 3.67 million in the year to June and Australian arrivals exceeding 2019 levels. Consumer spending also improved in selected categories, although households remained cautious and value-conscious.

New Zealand’s export economy remained a notable source of strength. Goods exports reached $7.4 billion in July, 14% higher than a year earlier, supported by dairy, meat and horticultural products. Imports rose even faster, producing a $1.9 billion monthly trade deficit, but much of the increase reflected higher fuel costs and stronger imports of vehicles, machinery and equipment rather than weakness in export demand. Annual exports exceeded $84 billion, reinforcing the resilience of the primary sector.

The corporate reporting season provided some encouraging domestic signals. Vulcan Steel reported its first year-on-year increase in underlying volumes in four years, indicating that conditions across construction, manufacturing and infrastructure may be beginning to stabilise. Port of Tauranga exceeded expectations, while Fisher & Paykel Healthcare upgraded guidance following strong hospital demand and improving margins. Fletcher Building, Spark and The Warehouse Group also provided evidence that restructuring, cost control and balance-sheet repair are starting to produce tangible results.

The reporting season was not defined by booming demand. Instead, it demonstrated that New Zealand companies are increasingly adapting to challenging conditions rather than waiting for the economy to recover. Management execution, capital discipline and market-share gains became important differentiators, with several companies reporting stabilising volumes or improving trading despite continued pressure on households and domestically focused sectors.

Artificial intelligence and electrification were also prominent themes. Contact Energy’s proposal to explore a 250-megawatt data centre at Stratford illustrated the potential for AI and cloud computing to create a significant new source of electricity demand. Investments by Contact, Mercury, Meridian, Genesis, Vector, Infratil and Chorus demonstrate how New Zealand companies are beginning to position for increased demand for renewable generation, electricity networks and digital infrastructure.

Since month end, the Reserve Bank of New Zealand increased the Official Cash Rate by 25 basis points to 2.75%, a move that had been widely anticipated by financial markets. While interest-rate increases are typically viewed negatively by borrowers and investors, market reaction was relatively constructive. The accompanying Monetary Policy Statement was interpreted as less hawkish than some had feared, with policymakers emphasising that future decisions would remain data dependent rather than committing to a prolonged tightening cycle.

The Reserve Bank acknowledged that inflation remains above target and that further increases cannot be ruled out. However, easing inflation expectations, a soft labour market, subdued housing activity and evidence of spare capacity across the economy suggest policymakers are seeking to balance inflation risks against the need to support an emerging economic recovery. Bond yields declined following the announcement as investors scaled back expectations for the extent of future rate increases.

The decision reinforces the view that while monetary policy remains restrictive, the Reserve Bank is not seeking to tighten policy unnecessarily. Instead, incoming economic data will play an increasingly important role in determining whether further action is required over coming months.

Portfolio positioning

August reinforced the importance of maintaining exposure to durable structural growth themes while remaining disciplined around quality and valuation. Artificial intelligence continues to create significant opportunities across cloud computing, semiconductors and software, but its influence is increasingly extending into less obvious areas such as fibre connectivity, electricity generation, copper, engineering equipment and data-centre construction.

The breadth of the opportunity supports a diversified approach. The companies likely to benefit are not limited to the most prominent technology platforms. Businesses supplying power, cooling, networking, advanced manufacturing equipment and essential commodities may also experience sustained demand as the buildout continues.

At the same time, August demonstrated that high expectations leave little room for disappointment. Our investment team remains focused on businesses with sustainable competitive advantages, strong balance sheets, attractive long-term growth prospects and the ability to convert investment into earnings and free cash flow. In a market becoming more selective, execution and valuation discipline are likely to remain increasingly important.

Looking ahead - market outlook

Markets enter September with a constructive growth backdrop but a more complicated policy environment. Economic activity across the major developed economies remains resilient and corporate earnings have generally been strong. However, inflation remains above central-bank targets, energy and tariff pressures have not disappeared, and governments face growing scrutiny over debt levels and borrowing costs.

In the United States, investors will continue to assess whether robust activity and AI-related investment can support earnings without creating renewed inflation pressure. The Federal Reserve’s reduced emphasis on forward guidance means each inflation, employment and activity report may have a greater influence on markets.

China also remains important. A sustained improvement in domestic demand and industrial profitability would provide broader support to regional markets and global commodity demand. Until clearer evidence emerges, investors are likely to remain selective, favouring technology and export-oriented industries over businesses dependent on a rapid domestic recovery.

In Australia and New Zealand, the interest-rate debate remains finely balanced. Both economies are showing signs of resilience, but inflation has not moderated sufficiently for policymakers to relax. Household spending, employment, housing activity and business confidence will therefore remain important indicators of whether central banks can return policy towards neutral without undermining the recovery.

The broader investment narrative remains constructive. Artificial intelligence is increasingly influencing physical investment, industrial activity, commodity demand and electricity infrastructure, while corporate reporting seasons have demonstrated the value of strong management execution. August showed that economic growth is proving more durable than expected, but it also reinforced that investors are becoming more demanding. In this environment, diversification, selectivity and a continued focus on long-term fundamentals remain essential.