International Equities

April was a highly volatile month for global equities. The U.S. Government’s tariff announcements on 2nd April 2025 sparked an initial 12% drop. Despite this, global equities ended the month just 0.4% lower.

The tariff program included a 10% baseline tax on imports and higher rates for countries with trade surpluses with the U.S. Despite the initial shock, a 90-day pause on tariffs above the baseline and exemptions for electronics helped calm both bond and equity markets. The 90-day pause did not extend to China, with tensions escalating between the two global superpowers during the month.

Concerns about the tariff program pushing the U.S. economy into recession remain, but the U.S. share market performed only slightly below the global average, with the S&P 500 Index falling 0.8%. European and Japanese markets, considered more defensive, performed better. The German market rose 1.5%, and the Japanese Nikkei Index advanced 1.2%. The U.K. faced challenges with an 18.6% fall in oil prices affecting its energy sector. Despite the bounce back in April, average returns for the quarter are still negative 6.3%, following losses in February and March.

The Chinese equity market showed resilience despite 145% tariffs, with losses limited to 2.6%. This moderate decline suggests strong market expectations that China can negotiate improved tariff outcomes. Other emerging markets, including India, were generally well supported. The MSCI Emerging Market Index declined 1.3% in unhedged AUD terms.

Lower bond yields provided further support for the infrastructure asset class, which returned 1.6% over the month, bringing the annual gain to 20.5%. Global listed property moved in line with the broader equity market and declined 0.4%.

Australian Equities

The Australian share market outperformed its global counterparts in April, with the S&P ASX 200 Index rising 3.6%. This performance came despite declines in energy and resource sectors. A key factor was the strong rebound in technology and growth stocks, which had been heavily sold off in March.

The Commonwealth Bank received solid support, jumping 10.4% to finish well ahead of the other major banks. Goodman Group also saw strong growth, rising 5.5% and significantly contributing to the 6.3% gain in the listed property sector.

The energy sector declined by 7.7%, reflecting the sharp drop in global oil prices. Non-energy resource stocks fared better, showing more stability across other commodities. Iron ore finished only 2.7% lower for the month. The ongoing rally in gold prices, which have increased 40% over the past year, also provided support for the Australian resource sector.

Fixed Interest & Currencies

Significant volatility extended to bond markets in April. Fears that the U.S. tariff program would be inflationary pushed U.S. bond yields higher, with the 10-year Treasury Bond yield peaking at 4.48%. However, expectations of a moderation in the tariff program led to a sharp fall in yields late in the month, with the 10-year Treasury Bond yield finishing at 4.17%.

The tariff program’s implications are more deflationary in Australia, evidenced by a more significant decline in the 10-year government bond yield, with the yield dropping from 4.40% to 4.15% over the month.

Broader concerns about the U.S. economy’s outlook led to a continued decline in support for the U.S. dollar. Both the Yen and Euro strengthened, while the Australian dollar gained US 1.4 cents to close the month at U.S. 64.2 cents. However, the $A declined against the Yen and Euro by 2.3% and 2.7%, respectively, over April.

Outlook and Portfolio Positioning

The recovery in equity markets after the initial “Liberation Day” sell-off suggests a general market expectation that the ultimate tariff program will be more moderate than initially announced. However, this optimism could lead to disappointment if the final outcome of the program does not meet expectations.

Given the unpredictability of the program’s roll-out, there remains a risk that the implementation of the tariff policy over the next few months could further destabilise financial markets. A cautious stance towards equity markets is warranted; the recent recovery should not be seen as a sign that the U.S. tariff program no longer poses a threat to market health.

The events of April indicate that the U.S. administration is sensitive to bond markets, with the initial spike in U.S. Treasury yields possibly prompting the 90-day pause in elements of the tariff program. The bond markets’ role in constraining tariff policy has given both bond and equity markets some confidence that long-term interest rates will be kept in check. Nonetheless, the tariff program has clear inflationary consequences for the U.S. economy, and the fact that the U.S. 10-year Treasury yield had its lowest monthly close in April since September last year may imply overconfidence in the outlook for U.S. interest rates.

In contrast to the inflationary risks in the U.S., the tariff program and its expected impact on global economic growth should be considered deflationary for most non-U.S. economies, including Australia. The 22% decline in oil prices in USD terms this year is significant and supports the ability of central banks to meet inflation targets comfortably. Australia, with a cash interest rate of 4.10%, has more flexibility in its monetary policy than most, adding to the appeal of domestic interest rate-sensitive assets. With Australia’s 10-year government bond yield trading at 4.15%, it offers a nearly identical return to the U.S. Treasury equivalent but without the upside risk to inflation. If local cash rates decrease as expected, Australian government bonds stand out as an attractive safe haven asset class.

However, Australian investments are not immune to tariff-related risks. Although the Chinese equity market shows resilience, there remains uncertainty about where the tariff program will land and how it will affect Australia’s exports to its largest trading partner. The risk that oil market weakness will spread to other commodities cannot be discounted. Additionally, while investors continue to purchase Australian bank shares (particularly the Commonwealth Bank) as “safe haven” assets, valuations for banks have become expensive and are therefore more vulnerable to correction. Recent events have created a challenging environment for investors. It is difficult to determine the correct response to the uncertainty created by U.S. tariff policy initiatives. Encouragingly, financial markets appear to be functioning well, with high liquidity, a well-capitalised banking system, and generally healthy corporate balance sheets. Therefore, the current environment should not be considered a crisis for investors. However, the shorter-term uncertainty necessitates an increased focus on ensuring portfolios are adequately diversified with high-quality assets to withstand an unusually high level of unpredictability.

Important Information

The following indexes are used to report asset class performance: ASX S&P 200 Index, MSCI World Index ex Australia net AUD TR, MSCI World ex Australia NR Hdg AUD, FTSE EPRA/NAREIT Developed REITs Index Net TRI AUD Hedged, Bloomberg AusBond Composite 0 Yr Index, Barclays Global Aggregate ($A Hedged), Bloomberg AusBond Bank Bill Index, S&P ASX 300 A-REIT (Sector) TR Index AUD, S&P Global Infrastructure NR Index (AUD Hedged), CSI China Securities 300 TR in CN, Deutsche Borse DAX 30 Performance TR in EU. Hang Seng TR in HKD, MSCI United Kingdom TR in GBP, Nikkei 225 in JPY, S&P 500 TR in USD.

The information used to prepare this market update has been sourced from third parties. No warranty is made as to the accuracy, reliability or completeness of any statement made in this market update or its suitability to your needs.