Monthly Commentary: October 2025

31 Oct Monthly Commentary: October 2025

Major asset class performance

• Global equities continued to move higher in September, supported by a US interest rate cut, still-limited tariff effects on the US economy and ongoing optimism around artificial intelligence.
• Australian equities pulled back, however, it was another month of solid rotation from large caps into small caps.
• Broadly steady bond yields produced small positive gains for fixed-rate bonds.
• Gold prices rose strongly again.

Source: Bloomberg, Betashares. Cash: Bloomberg Australian Bank Bill Index; Australian Bonds: Bloomberg AusBond Composite Index; Global Bonds: Bloomberg Global Aggregate Bond Index ($A hedged); Gold: Spot Gold Price in $US; Australian Equities: S&P/ASX 200 Index; Global Equities: MSCI All-Country World Index in local currency and $A currency (unhedged) terms. Past performance is not indicative of future performance. 

Fixed-rate bond trends

• Local rate cut expectations eased back in September as a higher-than-expected August CPI report reduced the chance of a November rate cut. Only one further rate cut is now expected locally by end-2026, with only a 50% chance attached to a cut in November this year.
• In the US, rate cut expectations held broadly steady, with two further rate cuts expected by end-2025 and two further in 2026 – on top of the rate cut delivered last month.
• Local 10-year bond yields edged up slightly to 4.32% and remain in the narrow sideways range evident since early 2024. With broadly steady bond yields, local fixed-rate bonds have marginally beaten cash over the past six months.
  • The prospect of further rate cuts should lower bond yields and further boost bond returns relative to cash over the coming year.
• Local credit spreads held steady, although have generally narrowed so far this year.
  • Easing economic risks bode well for credit spreads to at least hold at current relatively tight levels by historical standards.
• Local bonds have marginally beaten global bonds so far this year, after some underperformance in H2 2024. Overall, relative performance remains in a choppy sideways range, and the outlook remains relatively neutral.

Global equity trends

• The MSCI All-World price index rose a further 3.6% in September – reaching a new end-month record high – after a solid 2.0% gain in August. The gain reflected a 1.7% rise in forward earnings and a 1.8% gain in the price-to-forward-earnings ratio to 19.5.
• Earnings expectations edged up a little further in September following downgrades earlier this year. Current earnings expectations remain consistent with solid 16% growth in forward earnings by end-2026.
• With valuations still somewhat elevated, continued market gains are still possible, provided bond yields don’t rise much and/or the current bullish earnings outlook remains in place.

Source: Bloomberg, LSEG, Betashares. Global Equities: MSCI All-Country World Index. Global Bonds: Bloomberg Global Aggregate Bond Index ($A hedged). You cannot invest directly in an index. Past performance is not an indicator of future performance.

• Among select Betashares global equity ETFs, global gold miners (MNRS) enjoyed another solid gain in September of 22.6%, reflecting the ongoing strength in gold prices. The Nasdaq-100 (HNDQ) also outperformed, returning 5.5%.
• All up, the standout exposures so far this year remain global banks, gold miners and the Nasdaq-100.

Source: Bloomberg, LSEG, Betashares. Relative performance versus the MSCI All-Country World Index (local currency terms) for the indices which the relative ETFs track.  You cannot invest directly in an index. Past performance is not an indicator of future performance.

Australian dollar

• The Australian dollar rose further in September, reaching 66.1 US cents, supported by a US rate cut and reduced local rate cut expectations. Australia’s 12-month forward expected cash rate differential to the United States widened from -0.2% to +0.1% over the month, supporting the Australian dollar. The US dollar index and iron ore prices, meanwhile, remained steady.
• The Australian dollar has generally been firm so far in 2025, largely reflecting weakness in the US dollar. Australian versus US short-term rest rate differentials have been choppy, narrowing earlier this year but widening more recently. Iron ore prices have been broadly steady, recovering a little of late after weakness earlier this year.
• Reflecting an easing of global risks, more US rate cuts and its still-historically expensive level, the US dollar is expected to gradually weaken over the coming year, which should support more Australian dollar strength.

Source: Bloomberg, LSEG, Betashares. Australian Equities: S&P/ASX 200 Index. Australian Bonds: Bloomberg AusBond Composite Index. You cannot invest directly in an index. Past performance is not an indicator of future performance.

Australian shares

• The S&P/ASX 200 price index fell back 1.2% in September following a 2.6% gain in August.
• Further earnings downgrades led to a small 0.2% decline in forward earnings in the month, while the price-to-forward-earnings ratio fell 1.2% to 19.7.
• The fall in valuations during the month means Australian equities are back trading broadly in line with global valuations, which is where they have averaged over recent decades. That suggests while market valuations are well above their historic average, they are neither overly cheap nor expensive relative to global equities.
• Current earnings expectations imply 9% growth in Australian forward earnings by the end of 2026, which is somewhat less than that for global earnings. What’s more, Australian earnings expectations remain under downward pressure. Accordingly, with relative valuations fair, Australian equities still seem likely to underperform global equities over the coming year due to relatively weaker growth in earnings.

Source: Bloomberg, LSEG, Betashares. Australian Equities: S&P/ASX 200 Index. Australian Bonds: Bloomberg AusBond Composite Index. You cannot invest directly in an index. Past performance is not an indicator of future performance.

• A rotation toward resources and away from financial stocks remained evident in the large-cap space over the month, while the past two months have also seen a strong rotation from large caps overall into small caps.
• Among select Betashares Australian equity ETFs, standout performers in the month were resources (QRE) and small caps (SMLL) with gains of 4.1% and 5.2% respectively. Financials (QFN), in contrast, declined by 1.4%.
• Australian quality stocks (AQLT) have remained a consistent performer so far this year.

Source: Bloomberg, LSEG, Betashares. Relative performance versus the S&P/ASX 200 Index for the indices which the relative ETFs track.  You cannot invest directly in an index. Past performance is not an indicator of future performance.

This article was originally produced by David Bassanese from Betashares. You can read the full article here.

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