Global share markets delivered modest gains over the September quarter, despite an increasingly challenging backdrop as the period progressed. Resilient economic conditions and corporate earnings supported markets, but persistent inflation and renewed Middle East tensions contributed to higher oil prices and a reassessment of interest rate expectations.
These pressures intensified in September, when both the US Federal Reserve and Reserve Bank of Australia raised interest rates. Government bond yields rose as investors adjusted to the prospect of rates remaining higher for longer, weighing on fixed interest and interest rate-sensitive assets towards quarter end.
Australian shares delivered modest gains, with the S&P/ASX 200 Index rising +1.3%. Healthcare led the market following improved company results, while energy benefited from sharply higher oil prices. Materials also advanced, supported by higher copper and gold prices despite weakness in iron ore. In contrast, higher bond yields weighed on technology and real estate, while consumer discretionary also declined. Smaller companies underperformed, with the S&P/ASX Small Ordinaries Index declining -0.5%.
International shares delivered modest gains, with the MSCI All Country World Index rising +1.4% hedged and +1.2% unhedged. US shares advanced, supported by continued strength in AI-related technology companies, while Japan also gained. Europe was slightly weaker as higher energy costs and interest rate concerns weighed on sentiment. Emerging markets declined, with the MSCI Emerging Markets Index down -0.8% unhedged, with China and Taiwan advancing but India and South Korea weakening. Global small companies also underperformed, with the MSCI World ex Australia Small Cap Index falling -4.3%, as higher interest rates and more cautious risk sentiment favoured larger companies.
Property and infrastructure declined over the quarter as rising government bond yields reduced the relative appeal of income-oriented assets. Global listed property fell, with the FTSE EPRA NAREIT Developed Index (hedged) down -6.1%, while the FTSE Global Core Infrastructure 50/50 Index (hedged) declined -6.5%.
Fixed interest markets weakened as government bond yields rose across major markets amid persistent inflation concerns and expectations that interest rates could remain higher for longer. Australian fixed interest declined, with the Bloomberg AusBond Composite 0+ Yr Index down -1.5%, while the Bloomberg Global Aggregate Bond Index (hedged) fell -2.4%. Credit markets were mixed. Australian credit remained positive, supported by relatively high short-term interest rates, while global investment-grade and high-yield credit declined.
Australian shares delivered mixed results. Greencape Broadcap (+0.7%) delivered a modest gain broadly in line with the market. Allan Gray Australia Equity (+8.2%) significantly outperformed, led by an overweight to health care and favourable stock selection within the sector, generating a return for the full 12 months of 18.8%. Acadian Australian Equity Long Short (+4.7%) posted a strong gain, supported by stock selection in technology and materials. Alphinity Australian Share (-0.3%) was broadly flat, with health care and materials positioning offsetting gains in technology and industrials during a difficult August reporting season. Macquarie Australian Small Companies (+3.1%) outperformed a declining small cap benchmark, supported by overweights to gold and tin mining. International shares produced varied outcomes across the portfolio.
International shares delivered varied outcomes. Barrow Hanley Global Share (+0.9%) rose modestly, with gold mining and AI related hardware holdings providing support, offset by a large utilities overweight and weaker North American holdings. Janus Henderson Global Research Equity (+0.4%) was broadly flat as sector-based stock selection lagged a narrow market led by a handful of large technology companies. Artisan Global Discovery (-7.3%) fell sharply, as weak selection in industrials and technology outweighed gains from a health care overweight and communication services holdings. GQG Partners Global Equity (+1.9%) delivered a solid gain, supported by overweight exposure to energy and technology. Vinva Global Alpha Extension (+2.5%) rose, supported by quality, short-term and valuation signals and overweights to software and data storage. Life Cycle Global Share (+2.5%) gained, led by oil refining and Canadian energy holdings as refining margins rose alongside strength in cloud software. JPMorgan Global Research Enhanced Index Equity Hedged (+2.1%) delivered a solid gain, supported by underweights to semiconductor equipment makers as that sector sold off. Pzena Emerging Markets Value (+3.6%) outperformed a falling emerging markets backdrop, led by IT services, Brazilian energy and financial exchange holdings.
Listed property and infrastructure faced significant headwinds as rising bond yields pressured valuations globally. Quay Global Real Estate AUD Hedged (-6.4%) and ATLAS Infrastructure Hedged (-7.6%) declined for the quarter, although Atlas maintained a strong 13.9% return for the 12 month period.
Fixed interest markets were challenging over the quarter. AB Dynamic Global Fixed Income (-0.9%) was weighed down by rising government bond yields. PIMCO Global Bond (-3.3%) fell as global yields rose, with UK and US duration and agency mortgage exposures detracting. Yarra Enhanced Income (+0.3%) delivered a modest positive return as carry and subordinated debt income were largely offset by duration headwinds. Western Asset Australian Bond (-1.7%) declined as Australian bond yields rose, with a modest duration overweight detracting, partly offset by corporate credit and semi-government holdings.
Australian Eagle was exited after a period of period of performance which was below our expectations, and replaced with Acadian Australian Equity Long Short, whose quantitative, risk-controlled process is better suited to the portfolio. Allan Gray Australian Equity, Greencape Broadcap and Macquarie Australian Small Companies were reduced to help fund the change and spread risk.
T. Rowe Price Global Equity (Hedged) was exited, locking in strong absolute returns, as its results relied more on country and sector calls than stock selection. Janus Henderson Global Research Equity was added as a core growth allocation, and JPMorgan Global Research Enhanced Index Equity to manage currency hedging cost-effectively at the portfolio level. GQG Global Equity, Artisan Global Discovery and Pzena Emerging Markets were reduced, and Vinva Global Alpha Extension added, to spread risk.
AB Dynamic Global Fixed Income was trimmed to modestly increase global shares, moving portfolios to neutral on growth assets. We remain positive on global shares given strong earnings growth, despite stretched valuations and some AI-related volatility.