22 January 2026

 

Key takeaways:

  • A solid end to the year capped off a remarkable 2025 for share markets.
  • The share market gain over the year wasn’t achieved without periods of volatility.
  • Central banks remained broadly supportive, with some cutting interest rates, providing a backdrop for solid returns in fixed interest markets over the year.

 

Below is an in-depth review of financial markets over December. 

The global share market1 rose 0.8% (all returns are in local currency unless otherwise stated) in December, capping off an impressive 20.2% gain over the 2025 calendar year. The annual return marked the third straight year of double-digit gains. Investors were buoyed over the year by supportive central banks, healthy corporate fundamentals and the ongoing enthusiasm for US artificial intelligence (AI). 

Despite the strong return, the year was not without its ups and downs. Concerns over US tariffs and their potential inflationary impact, a US government shutdown, labour market concerns and a cut-price Chinese AI rival (DeepSeek) threatened to derail the multi-year rally. Investor reaction to the US ‘Liberation Day’ tariff announcement in April, saw the US share market2 decline over 10% in 2 trading days. The drawdown did not last long, with markets recovering quickly, returning 17.9% over the calendar year and recording a remarkable 39 closing highs along the way. 

Regular readers will know that we often highlight the importance of remaining focused on the long-term horizon and your investment goals and avoiding knee-jerk decisions. Investors who panicked and sold their shares or moved to a more conservative fund following the April sell-off, missed out on the strong recovery that followed. Volatility is the price investors pay for investing in shares to seek returns above income assets like cash and bonds. Those who benefitted the most in 2025 were those that remained invested, riding out the volatility. You can talk to a MAS Adviser or use our Fund Finder to help ensure that you’re in the right fund for your circumstances. 

While US AI stocks led the charge for much of the year, more recently the rally has become broader based. December continued to see the rotation out of technology stocks (profit-taking) and some defensive sectors, with market leadership shifting to more cyclical names. Over the December quarter, and in fact the calendar year, European markets and Emerging Markets (the latter in US dollar terms) outperformed the US share market, with financials and utilities (returning 47% and 34% respectively over 2025) leading the charge in Europe. We see this change in market leadership, and  broader market participation, as a healthy development for the share market. 

In Europe, share markets were buoyed as the Bank of England cut interest rates in December by 0.25% to 3.75%. Governor Bailey noted there may be scope for some further policy easing next year, although decisions are expected to be finely balanced. The UK share market3 gained 2.3% in December and was one of the stronger developed markets over the year, rallying 25.8%. The European Central Bank left interest rates unchanged in December at 2% for the fourth consecutive meeting. The central bank upgraded its 2026 growth and inflation forecasts to 1.2% and 1.9% respectively. The European share market4 gained 2.8% over December and 20.6% over the 2025 calendar year. 

Closer to home, both the Australian5 and New Zealand6 share markets posted modest gains in December, closing out a positive 2025. The Australian share market returned 10.3% over the year led by small cap companies, with the S&P/ASX Small Ordinaries Index gaining 25%. The local share market was more subdued, rising 3.3% over 2025. The NZ economy rebounded strongly from its 1.0% second quarter contraction, recording a heathy 1.1% uplift in the third quarter. This is a positive sign that the long-awaited economic recovery may be taking shape. 

Fixed interest investments recorded mixed returns over the month, but solid gains over the year. Yields on US Treasuries (bond prices move in the opposite direction to yields) ended lower over the year, as the Federal Reserve cut interest rates, with a 0.25% cut recorded in December. Fed Chair Jerome Powell, indicated that rates are now within a “broad range” of neutral, with expectations pointing to one further cut for each of 2026 and 2027. Yields on shorter-term US Treasuries declined materially, with the US 2-year Treasury yield falling 0.78% over the year to finish at 3.47%. In New Zealand, the 2-year Government bond yield declined 0.40% to end the year at 3.16%. 

The differing fortunes of various market indices are illustrated in the chart below. 

Returns of selected major markets to 31 December 2025

Note: Returns are in local currency terms.

 

What this means for our funds over the December quarter 

The chart below shows selected returns for all funds in the MAS KiwiSaver Scheme. Returns for comparable funds in the MAS Retirement Savings Scheme and the MAS Investment Funds are similar. 

MAS KiwiSaver Scheme Fund returns 2025

* Returns are after total annual fund charges and before tax. 

Key points to note from the chart above  

  • Share markets continued to climb over the December quarter, with growth orientated funds outperforming more conservative funds as a result of their higher exposure to shares. 
  • The solid performance across asset classes over the quarter capped off a strong 12-months for all funds. 

 

The Outlook

2025 was a rewarding yet eventful year for investors. Resilient global growth, healthy corporate fundamentals and enthusiasm for AI helped drive equity markets higher. This resilience allowed investors to navigate periods of heightened policy uncertainty. Together with relatively stable bond markets, this supported solid returns for balanced portfolios overall.

What could 2026 have in store? It would be overly simplistic to expect, ‘more of the same’. However, the base case for our lead investment manager, JBWere, is that many of the supportive factors seen in 2025 may persist. Expectations for steady global economic growth, contained inflation, and favourable financial conditions provide a supportive backdrop for share markets, alongside continued investment in transformative technologies. In short, JBWere expects broadly favourable economic conditions to provide financial markets with some resilience when faced with inevitable shocks and surprises.

Looking more closely at the global growth outlook, several positive tailwinds remain. Financial conditions are accommodative, business capital expenditure, particularly in technology, continues to increase, and targeted fiscal stimulus is expected in regions such as the US, Germany and Japan. The negative impact from earlier increases in US tariffs is also expected to fade over time. More fundamentally, private sector balance sheets are generally still in strong shape, providing some sturdiness to the growth picture. Some central banks, particularly the US Federal Reserve, also retain scope to ease policy further if needed.

At the same time, the global economy faces several meaningful crosscurrents. Large structural deficits could renew concerns about fiscal sustainability. Rapid growth in AI infrastructure is supporting economic activity, but rising capital requirements and increased debt may leave parts of the sector more sensitive to changes in liquidity and funding. While inflation has moderated, persistent pockets could still limit central bank flexibility.

Overall, while JBWere expects the global economy to navigate these crosscurrents, the margin for positive outcomes appears to be narrowing. Within the MAS Schemes, our active management style allows us to regularly test and adjust conviction levels when appropriate. Through diversification and exposures to high-quality investments, we believe the MAS Schemes are well placed to respond to a range of possible market outcomes.

We have useful online tools to help you:

If you decide to change your Fund after reviewing your risk profile or meeting with a MAS Adviser, you can make a switch via the MAS Investor Portal, or alternatively you can complete an investment strategy change request form. There is no fee for switching. Links to the relevant forms are below.     

You can see weekly updates on fund unit prices and returns on our website.

1 As represented by the MSCI All World Country Index.
2 As represented by the S&P 500 Index.
3 As represented by the FTSE 100 Index.
4 As represented by Euro Stoxx 600 Index. 
5 As represented by S&P/ASX 200 Index. 
6 As represented by S&P/NZX 50 Index.

This article is of a general nature and is not a substitute for professional and individually tailored advice. No party guarantees the return of capital or the performance of investment funds. Returns indicated may bear no relation to future performance. The value of investments will fluctuate as the values of underlying assets rise or fall.

MAS is a financial advice provider. Our financial advice disclosure statement is available by visiting mas.co.nz or by calling 0800 800 627.   

The Product Disclosure Statement for the MAS KiwiSaver Scheme is available at: MAS KiwiSaver Scheme. The Product Disclosure Statement for the MAS Retirement Savings Scheme is available at: MAS Retirement Savings Scheme. The Product Disclosure Statement for the MAS Investment Funds is available at: MAS Investment Funds. Medical Funds Management Limited is the issuer and manager of the Schemes.