MONTHLY ECONOMIC & INVESTMENT REVIEW – SEPTEMBER 2025:
Global markets delivered mixed results in September 2025. Developed equities advanced as easing trade tensions and central bank rate cuts supported sentiment, while Australian shares declined on weakness in energy and healthcare sectors. Emerging markets led gains, driven by China and Brazil. Bond yields were largely stable, with central banks signalling a cautious easing path. Precious metals surged, particularly gold, amid geopolitical risks. Overall, investor sentiment improved modestly, though slower growth remains the dominant global risk.
2. Asset Class Monthly Performance
- Australia (S&P/ASX 200) – The S&P/ASX 200 Accumulation Index fell 0.8% as nine of eleven sectors weakened. Energy (-9.8%) led losses amid oversupply fears and the failed Santos takeover, while Materials (+6.1%) rose on higher commodity prices. Small cap stocks were materially outperformed large cap stocks rising 3.4%.
- Global Developed Equities — The MSCI World ex-Australia (AUD) gained ~2.0%. The S&P 500 rose 3.5%, hitting record highs following a 25 bps Fed rate cut. The UK market increased 1.8%, Germany was flat -0.1%, and Japanese stocks rose +5.2% as a weaker yen and AI momentum boosted sentiment. Global small caps rose 0.7%.
- Emerging Markets — The MSCI EM (AUD) index advanced 5.8%, outperforming developed peers. China’s CSI 300 gained 3.2%, while Brazil and India also delivered solid returns amid stronger commodity demand and policy support.
- Listed Real Assets — A-REITs fell -3.1% as rate-sensitive sectors lagged. Global REITs rose 0.9% and Global Infrastructure (Hedged) gained 1.5%, aided by defensive cash flows and lower bond yields.
- Fixed Income — Bond markets were steady. U.S. 10-year yields eased 8 bps to 4.23%, German -1 bp, UK -2 bps. Japan’s 10-year rose to 1.65%, while Australia’s increased 3 bps to 4.30%. Global Credit (Hedged) rose ~1%, supported by narrower spreads.
- FX & Commodities — Commodity markets were mixed in September. Gold jumped 10.1% and silver 16%, reflecting safe-haven demand amid geopolitical risks and a softer USD. Oil prices fell -2.6% on rising global supply expectations, while iron ore and copper gained on supply disruptions and resilient Chinese demand. The AUD rose 1.1% to USD 0.66 at the end of September, benefiting from firm commodity prices and improved risk sentiment. The USD weakened slightly against the JPY and EUR as US rate cuts narrowed yield differentials.
- Global Macroeconomic and Corporate Earnings Overview
Global economic momentum slowed modestly in September as labour markets softened and manufacturing remained weak across developed economies. In the US, annual inflation eased to 2.9% while core remained around 3.1%. Payrolls rose only 22,000, lifting the jobless rate to 4.3%, confirming a cooling labour market that prompted the Fed to cut rates by 25 bps to 4.25–4.00%. Retail sales were steady, supported by services spending. In Europe, growth remains subdued with manufacturing PMIs below 50. Political instability in France added to uncertainty, though Germany and the UK benefited from fiscal support and resilient services activity. Japan posted solid growth on AI-related investment and a weaker yen. In China, manufacturing PMI remained below 50 (49.8) but sentiment improved on targeted stimulus. Commodity exporters like Brazil and India benefited from rising metal prices and capital flows. Corporate earnings remained resilient overall, with tech and industrial leaders reporting continued profit growth, offset by energy sector weakness. In Australia, GDP grew at 0.6% for the second quarter, slightly better than expected and reflects a rebound from a weaker first quarter.
4. Central Bank Interest Rate Policy
The Fed delivered its first rate cut of 2025, lowering the target range to 4.00–4.25% to counter labour market weakness. The ECB, BoE and BoJ held policy rates steady, citing ongoing disinflation and fragile growth. The BoC cut to 2.5%, it’s lowest since 2022. Domestically, the RBA kept rates unchanged at 3.6%, emphasising a data-driven approach as headline inflation returned to 3.0%. Markets now anticipate one to two further cuts by year-end, with the RBA’s terminal rate estimated near 3.1%.
5. Outlook
Global growth is expected to remain modest into early 2026. Easing monetary policy should support activity but sluggish manufacturing and soft employment data may limit momentum. We expect the US to slow further before recovering as fiscal stimulus builds, while Europe and Japan benefit from policy support and AI-linked investment. China’s recovery remains fragile but targeted stimulus should help stabilise growth. In Australia, inflation is now within the RBA’s target range and further rate cuts are likely in coming months. Overall, we remain cautiously constructive on risk assets but expect returns to moderate as valuations are stretched and policy uncertainty persists.
6. Portfolio Strategy & Asset Allocation
| Asset Class | Strategy |
| Equities: | Equities: Underweight U.S.; neutral Australia; overweight Japan, Europe, and Emerging Markets where valuations are relatively attractive. |
| Bonds & Credit: | Extend duration modestly after September’s rally; prefer high-quality sovereigns and investment-grade credit over high yield. |
| Alternatives: | Continue holding gold, listed infrastructure, and private credit for diversification and yield. |
| Commodities: | Overweight Gold for portfolio insurance and inflation hedging, Underweight Oil exposure due to oversupply concerns and slowing global growth. |
| Cash & FX: | Maintain a healthy cash buffer; keep AUD hedges in place given weaker USD outlook. |