Wrapping up 2025, and looking ahead to next year

As 2025 draws to a close, let’s reflect on a challenging, volatile, yet fruitful 12 months for investors.

We started the year with Donald Trump being inaugurated as US President for the second time.

Investors knew tariffs were on the cards, but his “Liberation Day” announcement in early April was still a shock.

World shares fell 16.3 per cent from February to April, before rallying 35 per cent over the balance of the year as Trump softened his stance and investors became more comfortable.

With less than a month to go, world shares have returned more than 20 per cent in 2025, more than double the average return of the past 30 years.

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European and emerging market shares have been the best performers for New Zealand investors, returning close to 25 per cent apiece.

A big part of Europe’s rise is due to favourable currency moves, with the NZ dollar slumping almost nine per cent against the euro over the course of this year.

Exchange rate movements were more subdued against other major trading partners.

Fixed income has been solid, with domestic corporate bonds delivering 5.4 per cent, in line with the long-term average.

US Treasury bonds have also performed well, rising more than six per cent for the best calendar year in five.

Gold had an exceptional year, rising 60 per cent, its strongest performance since 1979.

Bitcoin was the rollercoaster its fans have become accustomed to.

The highest profile crypto asset fell 18 per cent in the first few months of the year, before surging 63 per cent to hit fresh highs in October.

It then slumped 32 per cent from that peak and looks set to finish the year close to where it started.

Putting all of that together, most investors will have enjoyed a fairly lucrative year.

Middle-of-the-road balanced portfolios have probably ended up with a return in the 8-10 per cent, a little above the long-term average.

As for 2026, there’s plenty to look forward to.

Inflation looks contained, although it’s far from dead and buried.

Having said that, central banks will take a divergent path.

The Reserve Bank of New Zealand looks done, as does the European Central Bank.

The Federal Reserve in the US still has some easing to do, and this will be an important driver of sentiment throughout next year.

Policy interest rates need to rise further in Japan, while the Reserve Bank of Australia has one of the more challenging backdrops to navigate.

It has a solid economy, but also stubborn inflation to contend with.

The US economic outlook is by far the most important for investors, and I’m still optimistic for America in 2026.

Falling interest rates and no recessionary alarm bells are almost always a recipe for a solid backdrop and attractive returns.

Analysts are projecting earnings growth of 14 per cent in 2026 for the S&P 500, which should be enough to offset any valuation headwinds.

New Zealand looks good to me too.

Our sharemarket has been a significant laggard, compared to global peers, although that could change as the recovery picks up steam in the months ahead.

This should prove to be a tailwind for economically sensitive companies, while lower interest rates will push investors toward the attractive dividend payers on our market.

The housing market should fare better too, after a paltry 0.5 per cent return in 2025 and three negative years before that.

Lower interest rates are the obvious driver, but don’t underestimate how important greater job security will be if the labour market improves.

I don’t expect a repeat of the boom times, but annual house price gains in the 4-6 per cent zone seem reasonable.

Politics will be in focus stateside as well as here, with the US midterms taking place in late 2026 and the next New Zealand general election looming too.

I’m a firm believer in not letting politics have a major impact on your investment strategy, but that doesn’t mean paying no attention at all.

The first several months of midterm election years tend to be more of a grind, with US shares performing better as voting approaches.

The same can be true here in Aotearoa, with the leadup to an election often characterised by uncertainty.

That’s especially true when it’s expected to be close, as it could be with this one.

We’ll be watching with interest as more policy positions are released, and budget day is always much more exciting in an election year.

Take care and enjoy the holiday period team.

This year was an eventful one across financial markets and 2026 will no doubt bring plenty more action.

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