Global Markets Defy Expectations

September was an exceptional month for global markets, defying the typical volatility associated with this time of year. Markets rose by almost 4%, driven by falling US interest rates, ongoing AI enthusiasm, and optimism in emerging markets. We are currently in a clear risk-on environment, though many investors are warning that we could be approaching a 1999-style bubble. New Zealand, however, remains an outlier. Recent GDP data confirmed what many already felt — the economy is struggling. Q2 economic performance was even weaker than expected, and as a result, the NZ equity market continues to underperform global peers.

*Source: Factset: Kōura returns are pre-tax and post-fees. Returns over 12 months are annualised. Local market returns use the relevant markets indices; NZ Equities uses NZX50 index; US Equities uses S&P500 index; Rest of World uses MSCI EAFE Index; Emerging Markets uses MSCI Emerging Markets Index, Fixed Interest uses Bloomberg Aggregate NZ Composite Bond Index. Bitcoin return is the USD change in price of Bitcoin. The return for an Aggressive Portfolio represents the equivalent of 95% growth and 5% income assets investing in core Kōura Funds. The return for a Growth Portfolio represents the equivalent of 80% growth and 20% income assets by investing in core Kōura Funds. Returns are calculated by Kōura. Past performance is not a reliable indicator of future performance. Returns are not guaranteed, and investment values may fluctuate over time.

US Rate Cuts Begin

The US Federal Reserve has finally begun its rate-cutting cycle, delivering a 25bp cut. Softer economic data (including payroll and sentiment figures) has strengthened market expectations for two more cuts by year-end — a move that could once again turbocharge the economy. However, inflation remains stubbornly high at 3%, even before accounting for the inflationary effects of new tariffs and the ongoing restructuring of global trade. Central banks — often under pressure from political leaders — must balance supporting growth with keeping inflation in check.

AI Euphoria

The tech-heavy Nasdaq climbed over 5% in September, led by strong performances from Nvidia and Oracle, both of which announced massive investments in AI and data centre infrastructure. For a brief moment, Larry Ellison, founder of Oracle, became the world’s richest man. Still, some market watchers are concerned that any AI-related investment now seems to trigger automatic valuation gains — reminiscent of past speculative booms such as blockchain and fiber-optic expansions.

Emerging Markets Continue to Deliver

Emerging markets performed well again this month, buoyed by improving growth prospects and increased investor confidence. Emerging markets delivered a 7% return in the month, taking their year-to-date performance up to 19%. This has been driven by a combination of USD weakness (making emerging market exports more competitive), lower interest rates, and improved confidence in the Chinese economy. India remains a concern, with its trade spat with the US resulting in significant tariffs, which are likely to act as a handbrake on the fast-growing Indian economy.

The Ugliness at Home

In New Zealand, GDP contracted 0.9% in Q2 (Stats.govt.nz) — a much sharper decline than expected. While some of this may reflect statistical uncertainty (Stats NZ has struggled to accurately measure the economy), the broader concern is how widespread the weakness is: 10 of 16 industries declined during the quarter. This result has fueled public frustration, with some calling for political accountability. However, it’s important to recognize that New Zealand is facing the consequences of a long-term economic strategy heavily reliant on debt and immigration to support the housing market. As commentator Bernard Hickey often notes, “we are a housing market with a small economy tacked on.” Economists and business leaders are now urging the government to accelerate infrastructure investment. The decision to halt nearly all major projects upon taking office has likely worsened the downturn.

Are We at the Peak?

There is rising concern that the current AI boom resembles previous speculative buildouts, such as the railway mania of the 19th century or the fiber-optic boom of the

1990s — both of which led to overinvestment and eventual price collapses. Today’s surge in data centre construction has investors wary of repeating history. The difference this time is that the biggest investors — Microsoft, Amazon, Google, and Oracle — have diversified business models that can withstand a slowdown. However, Nvidia and OpenAI, which are more concentrated in AI, may face higher risks if demand cools.

Bitcoin Retouches Record Highs

Bitcoin has once again approached its record high around US $125,000, with the options market suggesting it could surpass $150,000 by year-end. Concerns over a potential US government shutdown, growing global deficits, and inflation are pushing investors toward alternative safe havens. Similarly, gold has rallied 20% in recent months, reflecting a parallel shift toward hard assets.

Disclaimers:

*Bitcoin is highly volatile and not suitable for all investors. Before investing part of your KiwiSaver balance in the Bitcoin fund, ensure you fully understand the risks associated with cryptocurrencies: https://shorturl.at/U6Mkp, and/or consider seeking financial advice.

*The views and opinions expressed in this article are those of Rupert Carlyon. This content is for informational purposes and should not be considered financial advice. Before making any financial decisions, consider consulting a financial adviser.

*Kōura Wealth Limited is the issuer and manager of the Kōura KiwiSaver Scheme. A copy of the Product Disclosure Statement is available at kourawealth.co.nz/documents