Overview  

The December 2025 market update focuses on rising geopolitical risks alongside growing concerns about the sustainability of US government debt. Markets closed the year navigating competing forces, with heightened uncertainty around global politics offset by continued growth and resilience in parts of the global economy.  

Market Environment and Key Themes  

Geopolitical tensions increased during the month, contributing to elevated market volatility and risk awareness. At the same time, investor attention increasingly turned to the expanding level of US debt, raising longer‑term questions about fiscal sustainability, interest rates and the potential implications for global bond markets. These themes shaped sentiment as investors assessed whether economic momentum could be maintained into 2026.  

Asset Class Performance  

Market performance across asset classes was mixed at the end of the year. Cash delivered relatively strong short‑term returns, while bonds experienced modest weakness, reflecting ongoing interest‑rate uncertainty. Australian and international listed property also posted subdued results. Equity markets showed more resilience over longer time horizons, with Australian shares, emerging markets and international shares delivering solid returns over one‑year and multi‑year periods despite short‑term volatility.  

Australian and Global Equities  

Equity market outcomes reflected divergent regional and sector dynamics. Australian shares benefited from relatively defensive characteristics and resource exposure, while international equities continued to be supported by US market strength over the year. Emerging markets delivered strong longer‑term returns, underpinned by recovery themes and selective exposure to global growth drivers, although near‑term performance remained uneven.  

Interest Rates and Bonds  

Bond markets continued to adjust to a higher‑for‑longer interest‑rate environment. While longer‑term returns remained positive, short‑term bond performance was softer as markets weighed inflation risks, government borrowing requirements and central bank policy settings. International bonds, particularly in hedged terms, reflected similar pressures.  

Outlook  

The December update concludes with a cautious but balanced outlook. Geopolitical risks and elevated government debt levels remain key sources of uncertainty heading into 2026. However, diversified portfolios have continued to generate reasonable long‑term returns, reinforcing the importance of maintaining discipline amid short‑term market noise. The interplay between fiscal policy, inflation, and global political developments is expected to remain central to market outcomes in the year ahead.