Global Market Review – February 2025

Global equities edged lower in February following a strong 2024 and a positive start to the year. Uncertainty around US tariffs and key economic data led to some volatility, but resilient corporate earnings provided market support.

Earnings resilience as economic conditions remain uncertain

Global equities declined slightly in February, down 0.72%, as profit-taking in large-cap US technology stocks weighed on growth equities, while value stocks outperformed. The post-election rally gave way to caution, particularly in sectors facing higher valuations and shifting interest rate expectations.

US equities struggled amid concerns over stretched valuations in mega-cap tech stocks and signs of weakening consumer demand. While manufacturing showed modest expansion, retail sales declined 0.8%, and consumer confidence softened, reinforcing investor caution.

US consumer demand continues to be impacted by elevated interest rates. However, as uncertainty around economic growth and policy direction persisted, investors pivoted towards defensive sectors. This shift reflected a preference for companies with stable cash flows and lower earnings volatility.

In the tech sector, Nvidia reported strong revenue growth, but its share price remained volatile upon margin and regulatory concerns. Meanwhile, Google-owner Alphabet declined after a very strong performance period. Investors were concerned about its substantial US$75 billion AI investment, slowing revenue growth in its cloud computing segment and heightened competition from OpenAI.

European Strength Continues

European equities outperformed, rising 3.69% as UK stocks reached record highs. Eurozone and UK stocks have been trading at a discount relative to the US, drawing investor interest. Market optimism was driven by the likelihood of a ceasefire in Ukraine and strong earnings in defence and financial sectors.

However, earnings were mixed. Defence and financials outperformed while, energy and industrials lagged due to fluctuating oil prices and supply chain disruptions.

China’s economy shows mixed signals

China’s Hang Seng Index rose 2.8% in February, supported by renewed foreign inflows into the tech sector, such as Tencent. The market benefited from increased investor confidence following China’s stimulus measures aimed at stabilising the economy. However, concerns over potential US tariffs on Chinese exports and supply chain disruption tempered some of the optimism.

China’s economic struggles persisted, with deflationary pressures intensifying. Inflation was weak but positive, as domestic demand remained sluggish. The property sector weakness continued to weigh on growth. This prompted the government to introduce targeted stimulus measures via lowering mortgage rates and easier credit conditions for real estate developers.

Australian share markets decline amid global headwinds

The Australian share market declined in February. The ASX 200 hit a record high mid-month before reversing gains in the latter half due to uncertainty around US tariffs and China’s slowing economic recovery.

The RBA cut interest rates by 0.25% to 4.10%. This move was widely expected as inflation edged lower, but investors remained cautious about the economic outlook.

Concerns over US tariffs weighed on sentiment, impacting mining stocks, including BHP, and reversing early month gains. Although the direct impact of US tariffs on Australia is likely to be minimal, the potential slowdown in China’s economy due to trade restrictions poses a risk. Weaker demand from China could dampen Australian exports, particularly iron ore and coal.

National home prices increased 0.3% in February, rebounding after a three-month downturn. The upswing was largely driven by expectations of future RBA rate cuts, which helped boost buyer confidence, despite ongoing affordability challenges.

Outlook

• Several central banks have already begun cutting rates, though the pace and extent of easing remain uncertain.
• Economic growth remains resilient, particularly in the US, though Europe remains relatively strong, while China faces ongoing headwinds.
• AI-related investments continue to drive earnings growth in the tech sector, although elevated volatility may continue.
• Geopolitical risks, particularly around US-China trade relations, remain a concern.
• Corporate earnings remain a key driver of equity markets, with valuation risks in some high-growth sectors.