Monthly Highlights:
- Global markets made a positive start to the year despite a heavy flow of headlines. Renewed tariff threats, geopolitical risks, a weaker US dollar and bond market volatility created a noisy backdrop, but investors remained focused on resilient economic conditions and earnings growth. Fiscal and inflation concerns weighed on government bond markets, while volatility picked up again in early February following a pullback in technology companies as AI-related valuations were reassessed.
- Australian shares rose over January, supported by firmer commodity prices and strength in materials and energy. Persistent inflation reinforced a less supportive interest rate backdrop, with the Reserve Bank of Australia lifting rates in February and markets anticipating further increases into 2026. This pressured several interest-sensitive sectors, including financials, technology and real estate, and contributed to a relatively narrow leadership profile.
- International shares delivered strong gains, although a stronger Australian dollar reduced returns for local investors. Performance broadened beyond the US, with Europe and parts of Asia leading developed markets. Japan benefited from improving domestic momentum alongside a more active policy and rates backdrop, while emerging markets were supported by a stronger month for China. Global small companies lagged larger peers.
- Australian and global fixed interest markets posted modest returns, with higher bond yields weighing on government bond performance. Credit, or corporate bonds, delivered modest gains as credit spreads tightened. This reflected investors requiring less additional return to hold corporate bonds over government bonds, supported by confidence in corporate balance sheets and earnings resilience despite a less supportive interest rate backdrop.
