Market Data – January 2025

Market Returns - 1 Month to 31 January 2025 (in AUD)

Market Commentary 

January 2025 was marked by significant market volatility driven by the U.S presidential transition, AI disruption, and escalating trade tensions. Markets initially demonstrated resilience with major indices posting gains early in the month, but sentiment shifted following President Trump's inauguration and subsequent policy announcements.

The month concluded on a turbulent note as the U.S. administration imposed import tariffs - 25% on Canada and Mexico and 10% on China - later postponing those on Canada and Mexico following negotiations. This overshadowed an otherwise strong earnings season, with tech, healthcare, and industrial companies in the S&P 500 reporting double-digit year-over-year growth, exceeding analyst expectations. The surprise emergence of China's DeepSeek AI model disrupted U.S. tech dominance, triggering volatility in semiconductor and big tech stocks, notably NVIDIA, which suffered a historic $US600 billion single-day market value loss. Markets largely stabilised towards month-end as investors reassessed competitive dynamics.

Global central banks showed diverging policies, with the Bank of Japan unexpectedly hiking rates 25bps to 0.5% while other central banks, including Canda and Sweden maintained their steady stance. U.S. inflation data provided some relief, with core figures coming in softer than expected, although still running above Central bank targets.

In Australia, the Q4 CPI report revealed further moderation in trimmed mean inflation to 3.2% year-on-year from the prior 3.5%, with core inflation easing on lower housing and energy costs, potentially giving the RBA room to cut rates.

Looking ahead, markets face uncertainty from US trade policy implementations, tech sector disruption, and diverging global growth trajectories. While January concluded with generally positive returns - European markets up 8% in AUD terms and broader markets gaining 2-4%, alongside rising gold prices and falling bond yields. Despite a strong start to the year, the rapidly evolving landscape suggests continued volatility ahead

Australian Equities

The Prime Australian Equities Portfolio returned 3.1% in January 2025, in a month where domestic markets navigated both local economic developments and global uncertainties.

The Financial sector emerged as the portfolio's strongest contributor, returning 8.2%. Australian banks showed particular resilience despite concerns about mortgage stress, benefiting from the RBA's signals of potential rate cuts following Q4 CPI data showing core inflation moderating to 3.2%. The Materials sector also performed well, returning 5.0%, though the sector faced some volatility late in the month following Trump's announcement of global tariffs.

The domestic technology and utility sectors faced challenges. Macquarie Technology Group (-4.1%) declined amid broader tech sector uncertainty following China's DeepSeek AI announcement, while Origin Energy (-4.1%) struggled as utilities underperformed. The NAB business survey showed improving conditions but highlighted ongoing price pressures, particularly affecting consumer-facing sectors.

As we move forward, the portfolio maintains its focus on quality Australian companies with strong market positions. While global factors like U.S. trade policy and AI developments remain important, domestic considerations including the RBA's February meeting and the ongoing balance between inflation and mortgage stress will likely drive near-term market direction.‍

Defensive Income

2025 started with largely solid performance for global fixed income. US economic data showed a continued tempering of inflation, alongside a buoyant labour market and the Federal Reserve kept interest rates unchanged at 4.25 – 4.50%. The US 10y yield closed the month steady at 4.55%, although at one stage got as high as 4.8%. High yield spreads compressed, down 10bps to 300bps on the CDX HY 5y spread.

The Australian bond market saw a material steepening in the curve, particularly at the longer end. The domestic ACGB 10y yield increased 7bps to 4.43%, but our 2y yield fell 6bps to 3.80% (vs 4bps fall in the US). A better-than-expected decline in local inflation has the market primed for an 18-Feb rate cut. Year-on-year trimmed mean CPI is running at 3.2% vs survey of 3.3%. Domestic credit spreads were stable month-on-month, with the AusBond Credit FRN OAS 2bps wider at 65bps. The AusBond Credit BBB- to BBB+ OAS fell 2bps to 121bps. Our 5y constant tenor Big Four Tier 2 FRN spread widened 3bps to 148bps.

Prime’s Defensive Income Portfolio delivered a robust return of +0.58% in January, marking a strong start to 2025. This performance contributed to an impressive 1y and 2y return of +6.98% and +6.52% p.a., outperforming the Bank Bill Index by +2.51% and +2.29%, respectively. Positively, this has been achieved with no negative months recorded since May 2023 (which was a modest negative 3bps). This excellent performance has been achieved while maintaining consistently low exposure to interest risk (~1.5y duration) and high credit quality (A- portfolio average credit rating). All underlying holdings contributed a positive return in January. The top performers for the Portfolio were Metrics Direct Income Fund (+0.71%) and MA Priority Income Fund (+0.71%), both contributing weighted returns of +9bps. MQGPF was the lowest contributer (+1bps), at the time of writing, this position has now been sold out of the portfolio as we continue to decrease our exposure to AT1 hybrids which are trading at historically tight margins.‍

International Equities

The Prime International Growth Portfolio returned 3.6% in January. The month was characterised by significant market volatility driven by President Trump's implementation of new tariffs, developments in the AI sector, and varying regional performance.

The iShares Europe ETF was the standout performer, returning 6.5% despite broader market uncertainty. The Aoris International Fund (+5.9%) and Munro Concentrated Global Growth Fund (+5.0%) also delivered strong returns, benefiting from positive earnings results in the tech sector and a broadening market rally early in the month.

Value-oriented strategies showed resilience, with the Pzena Global Focused Value Fund returning 4.7% as investors sought companies with strong fundamentals amid the uncertain trade environment.

The portfolio's U.S. exposure through the iShares S&P 500 ETF (+2.9%) delivered modest returns, reflecting the mixed impact of strong corporate earnings offset by concerns over new tariffs targeting Canada, Mexico, and China. The Langdon Global Smaller Companies Fund (+2.4%) demonstrated relative stability despite typically higher sensitivity to trade policy changes.

As we move forward, investor attention remains divided between the potential economic impacts of the newly imposed tariffs and the rapidly evolving AI landscape, particularly following China's DeepSeek announcement. These developments, combined with ongoing corporate earnings releases, suggest markets may continue to experience heightened volatility in the near term.

‍

Contact

_{The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.}