While it’s been a bumpy start to 2025, global markets experienced a heady ride in 2024, shaped by a mix of cautious economic recovery, geopolitical tensions, technological progress and changing monetary policies. Investors of nearly all persuasions came out winners, especially those with international allocations. Equity market investors celebrated double-digit gains, while in most cases conservative investors still managed to outpace inflation.
Taking a longer-term perspective, Mercer's ‘Periodic Table’ of investment returns displays the myriad outcomes generated by markets over time. Produced each year, the Table colour-codes 16 major asset classes and ranks their performance on an annual basis over the last 10 years.
The scattered colours of the Table reveal few reliable themes, with the exception of the old adage that, eventually, greater risk tends to be rewarded by greater return. The 10-year average performance numbers generally show a ranking of more volatile to less volatile asset classes (with the notable exception of Commodities). However, the Table indicates that the path along the way is anything but predictable.
Share markets hit top gear
The backdrop of 2024 was a global economy gradually recovering from the disruptions of the Covid-19 pandemic. For the most part, Central Banks adopted a more “dovish” stance after a series of aggressive interest rate hikes in 2022 and 2023. As a result, the investment landscape was characterised by a search for yield.
As noted, equity markets delivered impressive performance in 2024, particularly through large-cap and growth-oriented companies. In the US, the S&P 500 Index returned a stellar 25%, buoyed by a resilient economy, corporate earnings growth and a favourable interest rate environment. Perhaps most notable was the dominance of a select group of technology stocks known as the ‘Magnificent 7’ (Apple, Microsoft, Amazon, Alphabet, Nvidia, Tesla and Meta). This group benefited from increased investment in AI, cloud computing and digital transformation initiatives.
Outside the US, Japanese equities also performed robustly last year, aided by corporate governance improvements and the shift from a deflationary to an inflationary period. Most other regions produced double-digit returns, including Emerging Market equities which were bolstered by strong showings of India and Southeast Asia.
These regions benefited from robust economic growth, increasing foreign direct investment and a growing middle class. European equity markets were somewhat more subdued as they grappled with the conflict in Ukraine, concerns over energy supply and residual inflationary pressures.
The returns of overseas assets to domestic investors were heavily influenced by currency movements in 2024. This is most evident when comparing the outcomes of Global equities on a hedged (up 21%) versus an unhedged (up 34%) basis. Clearly, exposure to foreign currencies was advantageous, with the New Zealand dollar falling against the US dollar by a hefty 12% over the year.
Meanwhile, investors in New Zealand equities did not need to concern themselves with currency fluctuations and pocketed a handy 12% return for the year. One could be forgiven for forgetting the country spent much time in the ‘pits’ as it grappled with a recession! The NZX 50 Index was bolstered by the accelerating share price of Fisher & Paykel Healthcare, while other notable gainers included Tower Insurance, Gentrack, Vista and Fonterra.
Across the Tasman, the ASX 200 Index delivered a similar return, or slightly higher on an unhedged basis, with the banking sector leading the way.
Steady pace from other asset classes
Fixed Interest markets experienced a notable resurgence heading into 2024, and to some extent this continued amid stabilising interest rates and an easing of monetary policies. This helped New Zealand bonds deliver a respectable 5% for the year, a similar return to cash but outpacing Global bonds.
Corporate securities outperformed their government equivalents. The US 10-year Treasury yield, having risen in previous years, hovered around 4% for much of 2024, providing a fairly attractive risk-adjusted return for investors. But the standout Fixed Interest segment was Emerging Market debt which rose 15% amid greater investor interest, benefiting from improved credit ratings and economic outlooks, especially in Latin America and Asia.
The Property sector faced challenges in 2024, particularly in the office space segment. Globally, the shift towards remote and hybrid work models continued to reshape demand. In contrast, the industrial and logistics sectors thrived, driven by the ongoing e-commerce boom.
Investors increasingly turned to alternative real estate assets, such as healthcare and data centres, which benefited from long-term demographic trends and technological advancements. Overall, however, a rise in bond yields late in the period weighed on Global Listed Property which returned a fairly modest 4% for the year, as did New Zealand Direct Property. This was well below its cousin, Global Listed Infrastructure (up 13%), where asset demand proved more resilient.
Commodities delivered a fairly modest outcome in 2024, up 4%, masking significant volatility within specific sectors. Precious Metals and Agricultural commodities saw double-digit gains, while Grains experienced a heavy fall, and Energy and Industrial Metals saw slight declines. Meanwhile, Gold had a banner year, influenced by increased Central Bank purchases, particularly from nations outside the US seeking to diversify their reserves and hedge against geopolitical risks.
Global Private Equity should also be mentioned. Frequently appearing near the top of the Periodic Table leaderboard, 2024 was not one of the better years for this asset class. A 6% return reflected a softer liquidity environment as fundraising activity eased, and while exits grew, distributions as a portion of net asset value sank to the lowest level in several years
Drive to survive
In such an ever-evolving market environment, what is an investor to do? One can spend hours gazing at the Periodic Table seeking to identify patterns – whether real or, oftentimes, illusory. Alternatively, one can focus on structuring portfolios to withstand a variety of market conditions with an eye on longer-term outcomes. The latter approach tends to offer the most rewards.
The unpredictability of capital markets over the short term is a feature that tests investors repeatedly and resonates as we experience the heightened volatility of early 2025. For many investors, a successful way forward is to know your true time horizon, recognise the downside risk you can tolerate along the way, and harness the benefits of both asset class diversification and patience as much as possible. There will undoubtedly be twists and turns along the road, but you’ll enhance your chances of ultimately enjoying the sight of the chequered flag
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