Over the past three months, global financial markets showed remarkable resilience. Despite a backdrop of geopolitical uncertainty, optimism prevailed. This positive momentum was driven by two main factors: a significant easing of energy supply tensions in the Middle East and a sharp rise in technology investment.

Macroeconomic Overview

The most significant geopolitical relief came from an almost 40% drop in global oil prices. The de-escalation of conflict in Iran, alongside a formal agreement between the US and Iran, cleared the path to reopen the critical Strait of Hormuz shipping lane. This substantially lowered energy costs and eased concerns about inflation for the second half of the year.

Central Bank Policy

This economic backdrop led to different responses from central banks around the world:

• US Federal Reserve: Under its new Chair, Kevin Warsh, the Fed held its interest rate steady at 3.50% to 3.75% to keep inflation under control over the long term.
• European Central Bank: Took a more active approach, raising rates for the first time in nearly a year, by 0.25% to 2.25%.
• Bank of Japan: Raised its rate by 0.25% to 1.00% to counter rising prices.
• Reserve Bank of Australia: Implemented a matching 0.25% hike.

Local Perspective: New Zealand

The New Zealand economy showed encouraging signs of resilience. First-quarter real GDP growth came in slightly higher than expected and the unemployment rate stayed below expectations at 5.3%, while business confidence dipped during the quarter and inflation crept slightly higher.

From a currency perspective, the New Zealand dollar was relatively stable, falling just 0.3% against the US dollar.

Global Markets

The second quarter delivered strong results for share investors, while bond markets remained steady. Overall, global shares delivered an impressive 14.2% return (in NZD terms).

• Growth & Technology Stocks (+19.3% in NZD): Technology continues to be the primary engine of global growth. Major US tech firms announced their 2026 USD $700 billion infrastructure spending plans. This significant spending is fuelling the build-out of artificial intelligence (AI) infrastructure and data centres. Our portfolios directly benefited from a continuing shift toward the companies involved in the “picks and shovels” (the tools and infrastructure powering the AI boom).
• Value Stocks (+9.7% in NZD): While outpaced by growth stocks, traditional value companies still posted solid gains.

Regional Share Market Highlights

• New Zealand & Australia: Trans-Tasman markets grew steadily, with the NZX50 adding 5.5% and Australia’s ASX200 gaining 4.0% in local currency.
• United States (+15.2% in USD): The S&P 500 enjoyed its strongest corporate earnings season in years. The AI boom is lifting multiple sectors: banks are seeing increased capital markets activity and industrial companies are enjoying high demand for electrical equipment.
• Europe (+11.8% in EUR): Continental shares rallied as Middle Eastern tensions began to ease. Despite mixed data earlier in the quarter, European factory activity remained in expansion territory and consumer confidence began to recover from its April lows.

Fixed Income & Bonds

Global bond markets rose a modest 1.2% (in NZD) as investors weighed up the impact of changing energy prices on growth and inflation.

• New Zealand Bonds (+4.6%): Local bonds were a standout performer this quarter, delivering strong returns and stability in our more cautious holdings.
• European Bonds (+1.9% in EUR): European government bonds performed well, supported by moderate inflation and a softer economic growth outlook.
• US Bonds (+0.3% in USD): US Treasuries remained relatively flat. Although US consumer prices rose 4.2% in May, the substantial drop in oil prices later in the quarter is expected to ease inflation pressures going forward.

Looking Ahead

The global economy is transitioning. While inflation remains an item we watch closely, the combination of falling energy prices and once-in-a-generation corporate investment into technology provides a strong tailwind for global markets.

We remain disciplined, focusing our research on high-quality companies with robust earnings that can navigate shifting geopolitical conditions. As always, our priority is to protect and grow your investment through careful, active management.