Equity markets bounced back in May to such an extent that all the losses in 2025 have now been recovered in all countries except at home in New Zealand. The retrenching on tariffs by Donald Trump was the catalyst for the equity market rebound. US and China agreed a 90-day suspension of tariffs on most goods. In late May, the US Supreme Court ruled that President Trump’s “Liberation Day” tariff proposals are illegal as he did not have the authority to use the emergency economic powers legislation that he cited when he imposed them. The White House is appealing the ruling.

However, the more encouraging news was the announcement of some robust Q1 corporate earnings. The biggest benefiter was US technology stocks, up 10% for May. Communication Services and Consumer Discretionary were not far behind, around 9.5%. Healthcare was the only detractor during May, as Trump announced a drug pricing reform.

European equities continue to lead the way in 2025, up 20% ytd. Japanese equity markets rallied strongly, driven by strong large-cap performance. Emerging Markets also rose during May, particularly the markets of Taiwan, Korea and Hong Kong, which were supported by renewed investor optimism about artificial intelligence.

The US dollar continues to weaken, with the Japanese Yen joining it in May. This has a negative performance impact on our US shares in the funds.

The New Zealand and Australia sharemarkets were both up 4% during May. Generally smaller capitalisation stocks performed better than larger capitalisation stocks. The Technology sector, like it was globally, was the main benefactor, with Communication Services and Financials also doing well. Utilities, Consumer Staples, and Healthcare lagged the others.

May was another volatile month for global bond markets. Some concerns about debt sustainability on sovereign bonds rose, leading to global bond yields rising, delivering a small negative return for bond funds in May. The market focused on concerns around US fiscal sustainability. The Reconciliation Bill – which was approved by the House of Representatives and is now required to be passed by the Senate – was judged to worsen US debt dynamics, driving longer-end Treasury yields higher (yields are inverse to price). Moody’s cut its US sovereign rating to Aa1 – aligning itself with the other major credit rating agencies.

Other high deficit countries were vulnerable to the sell-off. A combination of worsening fiscal conditions, and a structural supply and demand imbalance for Japanese government bonds prompted a significant bear steepening of the yield curve. Our portfolios were somewhat protected from this by holding around 20% of our global bond exposure in short-dated bonds, which didn't experience the losses in May that longer-dated bonds did.

The New Zealand Reserve Bank reduced the OCR by another 25 basis points in May, down to 3.25%. However, they did signal that there may only be one or two further cuts to occur this year.

On the back of this, all the models were positive during May, as positive global equity returns more than offset negative returns from fixed interest. Models with more growth assets (e.g. 98/2, 80/20) performed better for the month.

The portfolios remain defensively positioned within fixed interest, while fully diversified across both equity and bond markets. Equity investments are about three times as much invested globally versus domestically invested.