Market commentary: Aug 2025

Investment performance

It’s all action and reaction in investment markets so far this year and the US is centre stage causing consternation and uncertainty in trade and international relations. Worryingly, democracy in the US as we know it is clearly under threat. Meanwhile, China has spotted opportunity and is hosting leaders from across Asia for a carefully choreographed summit designed to showcase their vision of a new world order.

In these times of great uncertainty, we’re pleased with our investment performance. Our client portfolio returns for the year to 31 August range from 8% for Conservative Balanced portfolios to 10% for Growth portfolios. The standout asset class, once again, is International Equities returning around 17%. Australasian Equities, Infrastructure and Fixed Interest sectors were all positive.

The investment environment

The environment is difficult, and patience and a long-term outlook is required. Uncertainty in markets is at a level where investors are delaying investment, and consumers are reducing spending. The US share market (50% of total global markets) is at a record high but under the surface there are signs of an economic slow-down.

I attended the latest Capital New Perspective Fund update. The fund invests in early stage and established multi-national companies. The main points I took from the presentation are that trade deals and tariffs are creating uncertainty, and economic growth predictions are down. The fund is moving away from the US share market to Europe and reducing investment in information technology companies.

Since July 2024 Makao Investments* who provide us with advice on asset allocation (the mix of investments) have been advising that, based on data, a market peak is not far away. Data since then has consistently shown that the US market is very expensive and market psychology continues to be optimistic. It’s a big surprise to us that a year later markets are being driven even higher - mainly by overly optimistic expectations of growth of US information technology companies.

How are we responding?

We are watching closely for signs that the market is near a peak. It’s a time to be conservative and we have already reduced the investment in shares by 2% across all portfolios. When Makao research identifies a trend that shows market psychology has switched to pessimistic, we will reduce investment in shares by a further 2% making portfolios 4% underweight compared to long term strategy.

Summary

As mentioned earlier, we are in a time of great uncertainty. Markets seem to be ignoring obvious signals but at some stage (we think sooner rather than later) the market will turn. When it does, we want to be prepared and, in a position, to take advantage.

*Makao Investments are the research provider to the investment adviser group Kingston Wealth belongs to. 

Richard Grimes, CERTIFIED FINANCIAL PLANNER (CFP^CM), Director and Financial Adviser