Global markets

Global equity markets delivered another strong month in May, with major indices once again pushing toward record highs, despite uncertainty around geopolitics, inflation, and interest rates. Investor sentiment was supported by resilient economic data, strong corporate earnings, and continued enthusiasm for artificial intelligence-related investment. Hopes for a more durable ceasefire between the United States and Iran also helped improve risk appetite during the month, contributing to lower oil prices and easing concerns around global energy supply. The MSCI World Index rose 4.6% in US dollar terms during the month to reach a new all-time high.

However, the strength of headline indices masked a narrower market underneath. Much of the advance was concentrated among a relatively small group of mega-cap technology and AI beneficiaries, while many other sectors and regions delivered more modest returns. This widening gap between index performance and broader market participation became one of the defining themes of the month, highlighting the importance of looking beyond the headline numbers.

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United States markets

The United States remained at the centre of market attention during May. All three major indices reached fresh record highs. The S&P 500 advanced 5.2%, the Nasdaq surged 8.4%, and the Dow Jones gained 2.8%.

Nvidia once again dominated headlines after reporting quarterly revenue of US$81.6 billion, up 85% from a year earlier. Data-centre revenue increased 92%, while management guided to approximately US$91 billion in revenue for the current quarter. The result reinforced the view that the AI investment cycle remains in full swing, extending well beyond semiconductors into networking, servers, memory, and electricity infrastructure.

Economic data painted a more mixed picture. First-quarter GDP growth was revised lower, highlighting some moderation in economic momentum, while retail sales remained relatively subdued as consumers continued to grapple with higher borrowing costs and elevated living expenses. Consumer sentiment also remained weak, reflecting ongoing concerns around inflation and household finances.

Inflation remains a key challenge. The Federal Reserve's preferred inflation measure, the Personal Consumption Expenditures (PCE) Price Index, remained above target, while the release of the latest FOMC minutes reinforced the cautious tone from policymakers. Officials acknowledged progress on inflation but indicated they require greater confidence that price pressures are moving sustainably toward target before considering further rate cuts. The uncertain trajectory of the conflict in the Middle East, and its potential implications for oil prices, inflation and economic growth, means inflation risks have not fully disappeared.

The labour market continued to show resilience. Non-farm payrolls increased by a better than expected 115,000 in April, with this figure revised upwards to 179,000 in May’s employment report, suggesting the world's largest economy continues to generate jobs despite slowing growth elsewhere. Broader indicators nevertheless pointed to some cooling beneath the surface. For example housing activity remained subdued as mortgage rates stayed elevated, limiting affordability and keeping pressure on the residential property market.

Overall, the US economy continues to expand, but the combination of resilient growth, sticky inflation and elevated asset prices leaves markets highly sensitive to incoming economic data and Federal Reserve commentary.

European markets

European equities also performed well during May, with the STOXX50 rising 2.9%, supported by easing inflation pressures and expectations that interest rates may gradually decline later this year. Major indices remained close to record highs, with investors encouraged by signs that the region may avoid a more significant economic slowdown.

Economic growth across Europe remains modest, particularly in Germany where manufacturing activity continues to face challenges. However, services activity has remained more resilient, helping offset some of the weakness in the industrial sector.

The prospect of lower interest rates and easing energy costs toward month-end helped support sentiment, although geopolitical developments and global trade remain important risks for the region.

Asian markets

Asian markets delivered mixed performances during May. Japan remained one of the strongest-performing developed markets, with the Nikkei surging 11.9% to new all-time highs, on the back of continued strength in semiconductor and technology-related stocks. A weak yen was also supportive.

In China, economic data continued to point to an uneven recovery. Manufacturing activity stabilised and industrial production remained relatively resilient, while policymakers continued to implement targeted measures aimed at supporting growth. However, weakness in the property sector and softer consumer spending continue to weigh on confidence. Nonetheless, the CSI300 in China rose 1.8% during the month.

Australian markets

The Australian market delivered a modest gain during May, with the ASX200 rising 0.8%.

In a move that was widely expected by markets, the Reserve Bank of Australia raised the cash rate by 25 basis points to 4.35%, marking an increase for the third consecutive meeting. The decision reflected growing concern that inflation pressures are proving more persistent than previously anticipated, particularly following the sharp rise in oil prices linked to the conflict in the Middle East. Importantly, Australia was already grappling with elevated inflation and strong domestic demand before the conflict began, meaning higher energy prices have added to an already challenging inflation backdrop.

Headline inflation rose to 4.6% in the year to March, prompting the RBA to revise up its near-term inflation forecasts. The Bank warned that a longer or more severe conflict in the Middle East could place further upward pressure on global energy prices, potentially lifting inflation expectations and delaying the return of inflation to target.

Governor Michele Bullock acknowledged that the outlook has become more uncertain. While economic growth has moderated and consumer spending remains under pressure, inflation remains the dominant concern for policymakers. Financial markets are currently pricing roughly a 50% chance of another rate increase in August and have largely priced in one further hike before the end of the year.

The decision highlights the difficult position facing central banks globally. While many economies have seen inflation fall significantly from its peak, geopolitical developments and energy markets remain capable of reversing some of that progress. For Australia, developments in the Middle East and China will remain particularly important factors shaping the economic outlook in the months ahead.

New Zealand markets

The New Zealand market delivered a strong monthly performance, with the NZX50G rising 2.6% during May - its best monthly gain since September.

The Reserve Bank of New Zealand was a key focus for investors during May. While the Bank ultimately left the Official Cash Rate unchanged at 2.25%, the most notable aspect of the decision was how close policymakers came to moving in the opposite direction. The Monetary Policy Committee was split 3-3, with Governor Anna Breman casting the deciding vote to keep rates on hold.

The split highlights just how finely balanced monetary policy has become. On one hand, higher oil prices and ongoing Middle East tensions are expected to lift inflation in the near term. On the other, policymakers remain conscious that tightening policy further could place additional pressure on an economy that is still lacklustre.

Recent survey data reflected that tension. Business confidence improved during May, and firms became more optimistic about their own activity, although confidence remains below levels seen before the Middle East conflict. Consumer confidence also improved modestly, but households remain cautious and spending intentions subdued.

More encouragingly, inflation expectations eased during the month, while pricing intentions and expected cost pressures also moderated. Wage indicators also remain relatively contained, suggesting medium-term inflation pressures may be less concerning than current headline inflation figures imply. Agriculture and manufacturing have generally held up better than retail and construction, although activity across much of the economy remains soft.

The Government's Budget 2026 reinforced a similar theme of caution and discipline. Key initiatives included additional infrastructure spending, strategic fuel reserves, a projected return to surplus sooner than previously forecast, and a reduction in planned government borrowing. Markets generally responded positively to the more restrained fiscal stance at a time when inflation and debt levels remain important considerations globally.

Overall, the New Zealand economy continues to show signs of gradual improvement, although policymakers remain alert to inflation risks and the uncertain global backdrop.

Portfolio positioning

The strong market recovery that began in April continued through May, with many of the companies added to portfolios during March's period of volatility contributing positively to performance. During that earlier sell-off, our investment team selectively increased positions in several businesses where we believed market prices had become disconnected from long-term fundamentals, while also introducing new investments where we identified attractive opportunities.

While uncertainty remains elevated, recent months have provided a useful reminder that periods of volatility often create opportunities. Maintaining a disciplined investment process and focusing on long-term fundamentals allowed us to take advantage of market weakness. It is also a good example of the benefits of active management, where changing market conditions can create opportunities to add to high-conviction holdings and identify new investments that may enhance long-term returns.

Looking ahead - market outlook

Markets have started June on a more cautious note after a sharp sell-off following the latest US jobs report, highlighting the growing list of competing forces investors must navigate.

Developments in the Middle East will remain a major focus for investors. While recent signs of de-escalation have been welcomed by markets, the conflict remains fluid, and any renewed disruption to energy markets could have significant implications for oil prices, inflation and global economic growth.

In the United States, investors will be watching upcoming inflation, growth and labour market data closely for further clues on the path of interest rates. More broadly, attention will also turn to upcoming decisions from the Federal Reserve, European Central Bank, Bank of Japan and Reserve Bank of Australia.

Central banks are all facing a similar balancing act. Inflation has eased significantly from its peak, but remains vulnerable to energy price shocks and geopolitical developments, while economic growth is showing signs of moderating. The uncertainty created by the conflict in the Middle East adds another layer of complexity, making it more difficult for policymakers to judge how restrictive monetary policy needs to be.

Investor appetite for transformational growth companies remains evident, with SpaceX set to complete the largest IPO in history. At a valuation of around US$1.8 trillion, the listing reflects enormous investor enthusiasm not just for the company itself, but for the long-term opportunities surrounding satellite communications, AI infrastructure, data networks and space technology.

Time will ultimately determine whether SpaceX can justify the lofty expectations being placed upon it, particularly given that many highly anticipated IPOs have historically struggled to meet investor expectations during their first year as public companies. For investors, exciting growth stories often come with plenty of hype, but it remains as important as ever to maintain a long-term perspective and stay focused on fundamentals.

Global markets

Global equity markets began June strongly but delivered more varied performance as the month progressed. Improving geopolitical sentiment saw oil prices fall 25% from peak levels. However, ongoing uncertainty around the sustainability of the US–Iran ceasefire continued to cloud the outlook for inflation and interest rates. Hawkish signals from central banks further impacted investor confidence. Market leadership also rotated, with some technology sectors easing, while more traditional sectors came back into favour. The MSCI World Index eased 0.83% in US dollar terms during the month.

The global economy has nonetheless remained resilient. June flash Purchasing Managers' Indices showed manufacturing activity at a five-month high in the US, strengthening in Japan, while Europe showed tentative signs of recovery helped by lower energy costs.

Artificial intelligence remained one of the dominant investment themes, with demand across the AI ecosystem continuing to exceed expectations. However, a notable shift emerged during the month: investors became increasingly selective as valuations rose. Markets began to reward companies delivering strong earnings while becoming less forgiving where expectations had become particularly ambitious. Market leadership also broadened through June, with defensive sectors outperforming later in the month.

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United States markets

In the US, the S&P 500 and Nasdaq both reached record highs early in the month before easing to finish June down 1.1% and 2.8% respectively as the broader technology sector softened. In contrast, a rotation towards more traditional sectors saw the Dow Jones gain 2.5% over the month, closing at fresh highs. Despite the more mixed tone in June, the second quarter was very strong overall, with the S&P 500 and Nasdaq gaining 14.9% and 21.4% respectively - their best quarterly gains since 2020 - while the Dow Jones advanced 13%, its strongest quarterly performance since Q4 2022.

A key tension continued to define the outlook: the US economy remains remarkably resilient, but that very resilience is reducing the urgency for interest-rate cuts. US job creation rose by 172,000 in May, more than double market expectations of around 80,000 jobs. The result was even stronger beneath the surface, with payrolls for March and April revised higher by a combined 93,000 jobs. The unemployment rate held steady at 4.3%, remaining within the narrow range that has prevailed since mid-2025. Retail sales rose 0.9% in May, ahead of expectations, suggesting US consumers remain reasonably resilient despite higher fuel costs and elevated borrowing rates.

While supportive of economic growth and corporate earnings, this strength has prompted a shift in expectations, with markets increasingly debating the path of monetary policy, and whether or not inflation will prove persistent.

The Federal Reserve left interest rates unchanged at 3.5%-3.75%, as expected, but the accompanying projections struck a more hawkish tone than markets anticipated. Nine of the 18 officials now expect interest rates to finish 2026 above current levels, while prediction markets have materially increased the probability of a rate hike over the next 12-18 months.

New Fed Chair Kevin Warsh declined to provide his own interest-rate projection, arguing that dot plots are not particularly helpful in conducting policy. However, the broader message from the meeting was that officials are less confident inflation will continue falling without interruption. Policymakers also remain alert to the risk that renewed geopolitical tensions could quickly reverse that progress and place upward pressure on energy prices.

On the subject of inflation, US CPI rose 0.5% in May, taking annual inflation to 4.2%, the highest in three years. However, much of the increase was driven by energy, which rose 3.9% over the month and 23.5% year-on-year. Core inflation was more contained, rising just 0.2% monthly and 2.9% annually. Producer prices told a similar story. However, the Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) indexreinforced the central bank's grounds for caution. Headline PCE inflation rose to an annual rate of 4.1%, the highest since April 2023, while the core measure (which strips out food and energy) climbed to 3.4%, its highest reading since October 2023.

Despite elevated interest rates and persistent inflation, the US economy has continued to demonstrate impressive resilience. Consumer spending has moderated but remains positive, and consumer sentiment has improved (albeit from historic lows) as petrol prices eased. Meanwhile, corporate earnings have generally exceeded expectations, and businesses continue to invest heavily in long-term growth initiatives, particularly across artificial intelligence and digital infrastructure.

A defining event during the month was the listing of SpaceX, the largest IPO in history. The offering reinforced the extraordinary appetite for transformational growth companies and may also signal the reopening of the technology IPO market following a prolonged slowdown, paving the way for other large private technology companies (including OpenAI and Anthropic, the owners of ChatGPT and Claude respectively) to list over the coming year. The transaction also renewed debate around valuation discipline, as investors weighed the company’s significant long-term potential against an already ambitious valuation. The shares ended the month 25% above their US$135 IPO price.

European markets

European markets delivered a positive month, supported by easing energy prices and improving global risk sentiment. Lower oil prices were particularly beneficial given Europe’s sensitivity to energy costs, helping to reduce inflationary pressures and provide relief for both consumers and businesses. The STOXX50 closed up 4.6% for the month.

The European Central Bank raised interest rates for the first time since 2023 during June, reinforcing that while inflation has fallen from its peak, policymakers remain cautious about renewed price pressures from higher energy costs and geopolitical uncertainty. Time will tell whether policymakers went “too early” given recent developments around a peace agreement between the US and Iran. The broader economic backdrop remains mixed. Manufacturing activity, particularly in Germany, continues to face headwinds, while the services sector has remained comparatively resilient.

The Bank of England left interest rates unchanged as expected. Policymakers continue to face a difficult balancing act between inflation and growth. Britain's fiscal position also remains under scrutiny. Government borrowing reached £23.3 billion in May, almost a third higher than a year ago, while debt-servicing costs hit a record £11.7 billion for the month. Higher energy prices, elevated interest rates and sluggish growth are making the fiscal arithmetic increasingly difficult. The challenge for policymakers is that higher defence, healthcare and welfare spending leaves little room for error.

Asian markets

Asian markets delivered mixed results during June, influenced by global technology trends, currency movements and evolving geopolitical conditions. In equity markets, Japan was a standout, with the Nikkei jumping 5.6%, reaching new all-time highs, before giving up some gains towards the end of the month.

The Bank of Japan raised its policy rate by 0.25% to around 1%, taking borrowing costs to their highest level in 31 years. While the move was widely expected, it marks another important step in Japan's long journey away from the ultra-low interest rates and deflation that dominated much of the past three decades.

In China, economic data continued to point to a gradual but uneven recovery. Industrial production and exports remained relatively resilient, supported by targeted stimulus measures, although domestic demand remains subdued. Ongoing weakness in the property sector continues to weigh on consumer confidence and limits the pace of recovery. The Hang Seng fell 9.1% during the month.

Australian markets

Australian equities also delivered a positive month, with the S&P/ASX200 rising around 0.5%. Cyclical sectors benefited earlier in the month, while defensive sectors such as healthcare attracted renewed investor interest later in June.

The Reserve Bank of Australia left interest rates unchanged at 4.35% during June as policymakers continued to balance persistent inflation pressures against moderating economic growth. Investor sentiment was also supported by the passage of the Australian Government's significant tax reform package, which is expected to have longer-term implications for household incomes, property markets, and broader economic activity.

While the economy is slowing, it is not weakening materially. Labour market data reinforced this with Australia adding more than 40,000 jobs during May, while the unemployment rate edged down to 4.4%. That's still low by historical standards and suggests wage pressures are likely to remain firm.

Inflation remains a key challenge. While falling oil prices have helped ease headline pressures, underlying inflation (which rose to 3.6% in May) remains above the Reserve Bank of Australia’s 2-3% target range. As a result, the RBA has maintained a cautious stance, preferring to leave interest rates unchanged while assessing incoming data.

New Zealand markets

The NZX50G gained 2.9% during June. Investor sentiment improved as expectations for further interest rate increases eased somewhat following the ceasefire in the Middle East and the accompanying decline in oil prices. Lower energy prices have reduced inflation concerns, improving the outlook for household spending and supporting expectations that New Zealand's economic recovery can resume.

New Zealand’s economy continued to display a clear two-speed dynamic during June. Export-focused industries remain an important source of resilience, while domestically focused sectors continue to face more challenging conditions.

Strong global demand for agricultural products has supported record export levels, with meat, dairy and other primary industries performing well. Exports reached a second consecutive monthly record in May, climbing to $8.9 billion and taking annual exports to a record $82.7 billion. A weaker New Zealand dollar has further supported exporters, and the tourism sector, helping offset softness elsewhere in the economy.

There is, however, a sting in the tail. Imports rose 26% to $8.1 billion, largely reflecting the impact of higher fuel costs during the Middle East conflict. As a result, the monthly trade surplus narrowed to $800 million from $1.6 billion in April.

Domestic demand has remained subdued. Manufacturing has been relatively resilient, but consumer spending continues to be constrained by higher living costs and elevated interest rates, while the housing market and many service sectors have yet to experience a meaningful recovery.

Confidence has improved modestly, but conditions remain uneven. Forward indicators are looking more encouraging. New dwelling consents rose 11% in April and are now up 16% over the past year, with almost 39,100 new homes consented nationally.

This divergence leaves the Reserve Bank of New Zealand with a delicate balancing act. The RBNZ has consistently indicated it would look through temporary, supply-driven movements in oil prices when setting monetary policy, focusing instead on underlying inflation pressures and the medium-term outlook. As oil prices have retreated recently, market pricing for near term rate hikes has also eased, but the market is still pricing in hikes in the year ahead.

From an investment perspective, a more stable interest-rate outlook is beginning to support the outlook for parts of the domestic market. While still early, there are some encouraging signs here.

Portfolio positioning

June reinforced the importance of maintaining a disciplined and selective investment approach. While artificial intelligence remains one of the most compelling long-term investment themes, markets are becoming increasingly discerning - rewarding companies delivering strong earnings while becoming less forgiving where expectations have run ahead of fundamentals.

After an exceptional rally over the past 18 months, markets are entering a phase where valuations leave less room for disappointment, increasing the importance of earnings delivery and careful stock selection.

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, and attractive long-term growth prospects. 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

Developments in the Middle East will remain a key focus, particularly given the potential for energy market disruptions to influence inflation. In the United States, upcoming inflation, labour-market and growth data will continue to drive market sentiment, alongside policy decisions from the Federal Reserve.

The broader investment narrative remains intact. Artificial intelligence, digital infrastructure and the growing demand for computing power continue to underpin long-term earnings growth. However, markets are becoming increasingly selective as valuations rise. We expect periods of volatility and sector rotation to remain a feature of markets, reinforcing the importance of diversification, active management and maintaining a long-term investment perspective.

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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• Open a Managed Fund

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.