MONTHLY ECONOMIC & INVESTMENT REVIEW – AUGUST 2025:
Growth assets again outperformed Defensive assets in August. Australia shares led other developed market peers largely due to a powerful run in Mining stocks. Global equities advanced on resilient earnings and growing confidence in further interest rate cuts. The RBA as expected, delivered a 25 bp cut lower official interest rates to 3.60%, and US core inflation held near 3.1% y/y, with headline inflation at 2.9% y/y—keeping a further September US Fed interest rate cut likely. Our investment strategy remains balanced but with a modest tilt to growth assets, favoring non-U.S. equities, high-quality fixed income, and a measured allocation to listed real assets and gold for portfolio insurance.
2. Asset Class Monthly Performance
- Australia (S&P/ASX 200 Accum +3.1%) — Materials +9.2% led; Consumer Discretionary +7.6%, Utilities +5.3%, A-REITs +4.5%. Health Care −13.2% on stock-specific downgrades (e.g., CSL −21.4%, Telix −30.6%), while IDP +57.9% rebounded on an outlook reset. Australian small caps outperformed the broader market.
- Global developed equities — MSCI World ex-AU (AUD) ~+0.9%; S&P 500 +1.9% rose due to Corporates reporting better than expected earnings in 80% of instances. Value (+3.0%) and quality (+2.0%) outpaced growth (+1.2%) styles, with global small caps +3.4% outperforming the broader market. Europe was mixed (DAX −0.7%, FTSE 100 +0.6%) while Japan (Nikkei) +4.0% outperformed again on a weaker currency and inflows.
- Emerging markets — MSCI EM (AUD) −0.4%; China was a standout, bucking the trend and rising +10.3% (CSI 300), on Government policy support.
- Listed real assets — A-REITs +4.5%, Global REITs (Hedged) +3.6%, Global infrastructure (Hedged) +1.2%. Australian dwelling prices rose +0.7% m/m, with Brisbane +1.2%, Perth +1.1%, Darwin +1.0% (Sydney +0.8%, Melbourne +0.3%, Hobart −0.2%).
- Fixed income — Government yields were broadly stable to slightly higher ex-US: UST 10y 4.23% (−1 bp); AU 10y 4.27% (+1 bp); Germany 10y 2.71% (+3 bps); France 3.50% (+16 bps); UK 4.72% (+16 bps); Japan 1.60% (+5 bps). Global Gov (Hedged) and Global Credit (Hedged) delivered small positive returns.
- FX & commodities — Oil −7.6%, gold +4.8%, iron ore +2.9%, copper +4.3%, aluminium +7.0%; the RBA commodity index rose 1.4% for the month.
3. Global Macroeconomic Overview and Corporate Earnings Overview
- Australia: July unemployment ticked up to 4.2%; monthly inflation (CPI) rose to 2.8% y/y with housing/electricity price rises. Corporate earnings reported were positive outside of Health Care but reflected significant dispersion in outcomes. This represents an opportunity for skilled stock pickers to add value by outperforming the market.
- United States: Core inflation (CPI) 3.1% y/y; headline 2.9% y/y in August (up from 2.7% in July). Q2 earnings were robust (80%+ beat rate) and equity indices hovered near highs.
- Europe/Japan: Europe recorded mixed news with lots of political noise; Japan was better with a weaker Japanese Yen and foreign inflows boosting GDP.
- China/EM: Chinese data were mixed, with the important lead indicator (PMI) dropping below 50, as well as softer Industrial Production and retail data. Despite this, investor appetite improved on the back of targeted government policy that will support near-term economic growth.
- Trade & Geopolitics: Progress on multiple bilateral arrangements (EU/UK/Japan/Korea) and a preliminary US-China tariff pause eased concerns amongst investors and supported risk appetite.
4. Central Bank Interest Rate Policy
- RBA (Australia): Cut 25 bps to 3.60% in August, with the market forecasting modest further easing for the remainder of 2026.
- Fed (United States): Softening labour trends and contained inflation are supportive of a September interest rate cut.
- Bond Yields: US 10-year ended 4.23% and Aust 10-year 4.27% were flat for the month, while Japanese 10-year 1.60% rose +5 bp for the month.
5. Currency & Commodities
AUD firmed against its major trading partners as metals prices firmed, gold extended its uptrend as Central Banks and Investors continue to buy Gold as a hedge against rising Sovereign debt.
Oil: August average for Brent crude was $67.9/bbl vs $71.0 in July.
6. Outlook
We’re cautiously positive for the next 6–12 months. Company profits are holding up, and interest rates are more likely to drift lower, which generally supports share markets. For Australians, steadier commodity prices also help the local market. The main risk is that U.S. shares look expensive—prices already assume a lot of good news—so any earnings disappointment could bite. Consequently, we suggest a balanced approach: keep share exposure but focus on steadier, cash-generating companies and look beyond the U.S. Add higher-quality bonds and increase exposure to longer-dated bonds if the market dips. Keep some real assets (infrastructure/REITs) for income and diversification, a small gold position as a shock-absorber, and a healthy cash buffer for opportunities.
7. Portfolio Strategy & Asset Allocation
| Asset Class | Strategy |
| Equities: | Underweight U.S.; neutral Australia; overweight Canada, UK, Japan, and Emerging Markets. Tilt to defensives—health care, staples, utilities. |
| Bonds & Credit: | Short-duration but look to lengthen into any weakness, high-quality sovereigns preferred; stick to higher rated in credit. |
| Alternatives: | Maintain positions in gold, infrastructure, and private credit. |
| Cash & FX: | Overweight cash for flexibility; maintain AUD hedges given USD outlook. |