Global share markets declined over the March quarter, with a positive start to the year reversing as conditions weakened sharply late in the period. Early support from resilient economic conditions, easing inflation in some regions and solid earnings was overtaken by escalating geopolitical tensions in the Middle East, centred on coordinated US–Israeli strikes on Iranian targets. The resulting disruption to key energy supply routes drove a sharp rise in oil prices, increasing inflation concerns and prompting a reassessment of interest rate expectations. This shift led to a broad risk-off environment, with higher yields and increased volatility weighing on markets.
Australian shares were volatile over the quarter, ultimately finishing lower, with the S&P/ASX 200 Index declining -1.6%. Early gains were supported by firmer commodity prices and strength in materials, alongside resilient earnings in financials. However, these gains were offset by a pullback in March, with weakness across most sectors, particularly growth and interest-sensitive sectors such as technology and real estate. Energy was a notable exception, benefiting from higher oil prices. Smaller companies underperformed, with the S&P/ASX Small Ordinaries Index falling -10.9%, reflecting their greater sensitivity to shifts in risk appetite and economic expectations.
International shares declined across most regions, with the MSCI All Country World Index falling -5.8% unhedged and -2.7% hedged. Losses were broad-based, with the US, Europe and China all finishing lower, while Japan was a notable exception. Weakness in technology shares weighed on performance as investors reassessed AI-related valuations. Emerging markets also declined, with the MSCI Emerging Markets Index down -2.8%, reflecting weaker sentiment and higher energy prices that impacted China and India in particular. Global small companies were more resilient, with the MSCI World ex Australia Small Cap Index down -1.0%.
Property and infrastructure delivered positive returns over the quarter. Global listed property rose modestly, with the FTSE EPRA NAREIT Developed Index (hedged) up +1.0%, supported by gains earlier in the period. Infrastructure outperformed broader share markets, with the FTSE Global Core Infrastructure 50/50 Index (hedged) rising +8.3%, reflecting strong early gains and its more defensive characteristics, which helped it hold up relatively well during the March sell-off.
Fixed interest markets were relatively resilient despite volatility. Bond yields declined in February before rising again in March as higher oil prices lifted inflation expectations. Global bonds declined modestly, with the Bloomberg Global Aggregate Bond Index (hedged) down -0.3%, while Australian fixed interest also eased, with the Bloomberg AusBond Composite 0+ Yr Index down -0.3%. Credit markets were mixed, with global credit declining modestly and high yield underperforming, while Australian credit delivered positive returns, with the Bloomberg AusBond Credit FRN 0+ Yr Index up +1.0%, supported by income and relatively stable domestic conditions.
Australian shares were volatile over the quarter, finishing modestly lower. Alphinity Australian Share (+0.3%) outperformed the broader market, driven by strong materials exposure as commodity prices and investment demand strengthened. Allan Gray Australia Equity (-0.8%) delivered a relatively resilient outcome, with overweight positions in materials and energy providing support, partly offset by an underweight to financials. Australian Eagle Trust (-0.3%) held up relatively well, supported by financials and defensive sector positioning. Greencape Broadcap (-5.6%) underperformed meaningfully, with underweight exposure to financials and materials detracting, compounded by overweight positions in health care and industrials.
International share markets declined across most regions over the quarter. GQG Partners Global Equity (+5.1%) delivered a strong result, with energy, communication services, and utilities positioning driving outperformance against a broadly declining market. Barrow Hanley Global Share (-1.1%) delivered a resilient relative outcome, with energy exposure and value positioning benefiting from higher oil prices and a rotation away from technology. Pzena Emerging Markets Value (+0.9%) generated a positive return, supported by stock selection across consumer, industrial, and financial sectors. T. Rowe Price Global Equity Hedged (-3.9%) underperformed as a significant overweight to information technology and semiconductors weighed heavily on returns when AI sentiment reversed sharply, although this Fund has maintained a return of +12% for the past 12 months. Life Cycle Global Share (-7.7%) declined, with an overweight to financials detracting as the sector fell.
Property and infrastructure delivered divergent results. Quay Global Real Estate AUD Hedged (-3.0%) declined as strength in data centre and residential property exposure was more than offset by weakness in retail and European storage positions. ATLAS Infrastructure Hedged (+11.8%) delivered a very strong return, with utilities and energy infrastructure holdings benefiting from resilient earnings and robust sector performance.
Fixed interest markets faced pressure from rising yields. Yarra Enhanced Income (+0.1%) generated a modest positive return, with income providing support despite widening credit spreads. Western Asset Australian Bond (-0.4%) broadly tracked the market, with credit selection partly offsetting duration headwinds. AB Dynamic Global Fixed Income (0.0%) was broadly flat, with country and credit selection weighing on returns. PIMCO Global Bond (-1.6%) underperformed the global bond benchmark as duration exposure detracted.
Value stocks have materially outperformed across global and Australian equity markets following the sharp sell-off around Liberation Day, led by financials, healthcare and materials. Given this strength, and in line with our neutral view between growth and value, we trimmed select deep value managers to avoid portfolios becoming overly style-driven. This provided an opportunity to rebalance toward a more neutral style position. Accordingly, allocations to Barrow Hanley Global Share and Pzena Emerging Markets Value were reduced, with proceeds partially reallocated to the style-neutral Life Cycle Global Share.
Strong performance across emerging markets and real assets also provided an opportunity to rebalance exposures. Portfolios had maintained an underweight to Australian equities, which contributed positively to recent performance, and this was moved closer to neutral while retaining a modest underweight. The overweight to emerging markets was similarly reduced to a more moderate level, while real assets were trimmed as a funding source. Accordingly, allocations to Atlas Infrastructure, Quay Global Real Estate and Pzena Emerging Markets Value were reduced, with proceeds redeployed into Life Cycle Global Share (as mentioned above) and Alphinity Australian Share, supporting a more balanced regional and style positioning.