ACKNOWLEDGEMENTS
EDITOR IN CHIEF:
Laryssa Latt
EXECUTIVE CONTENT
WRITERS:
Lucy Song
Matthew Davies
EXECUTIVE DESIGN
EDITORS:
Aaron Yuen
Katherine Lu
Oscar Yin
AUTHORS: Aileen Cao
Andris Dang
Carol Wang
Charlton Song
Daniel Johnson
DESIGNERS:
Aileen Cao
Andris Dang
Carol Wang
Chris Goh
Daniel Johnson
Feifei Gao
Hannah Hsu
Jamie Wang
Jayden So
Johnny Xu
Erin Seo
Hannah Hsu
Jonathan Gu
Lily Huang
Nikki Casaclang
Jonathan Chen
Jonathan Gu
Nicola Casaclang
Rizana Ahmed
Shaurya Saini
Rizana Ahmed
Vanessa Nguyen
Vincent Bui
Sid John Tom Xie
Vincent Bui
Zachary Ni UNIT CHAPTERS
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SECTION 2 : FIXED INCOME
SECTION 6 : ALTS
SECTION 3 : FX
SECTION 4 : COMMODITIES
INTRODUCTION EQUITIES
Equities are financial instruments that represent ownership in a company, giving shareholdersaclaimonitsassetsandprofits.
This chapter will provide an overview on some of the common equities in financial markets and examines key trends across major regions, in relation to the broader macroeconomicenvironment.
Public equities are shares of ownership in a company (e.g. owning shares in Apple) that are traded on public stock exchanges. Examples of stock exchanges include the New York Stock Exchange (NYSE) or the Tokyo Stock Exchange (TSE). Investors may choose to buy public equities to either gain control of a company or seek profits through dividend payments and/or selling theirsharesinthefutureforahighervalue.
The US currently holds the largest percentage of market capitalisation in equities (i.e. total market value of a company’s outstanding shares) worldwide at 53%, followed by China at 6%. Compared to alternative investments such as private equity or real estate, public equity is more readily available to all types of investors, also generally safer due to the liquidity provided from trading on public
EXCHANGE-TRADED FUNDS
Exchange-Traded Funds (ETFs) are investment funds which hold a diversified portfolio of public equities, essentially owning a basket of equities through one investment. However, they still trade on like singlular stocks. An example of an ETF is the Vanguard ASX300 ETF (ASX: VAS), which holds the largest 300 companies on the ASX, representing around97%oftheAustralianmarket.
Compared to other public equities, ETFs offer lower risk due to their diversified portfolios, thus spreading the risk of any singular share which underperforms within the ETF. However, an ETF usually incurs Management Expense Ratio (MER) fees to cover the total expenses used to run the fund. These ETFs are typically chosen and run by a team of finance professionalsknownasassetmanagers.
AUSTRALIA
Australia’s equity market has proven remarkably resilient in 2025 despite a backdrop of heightened global and domestic uncertainty, with the All Ordinaries and S&P/ASX 200 indicesrisingby17%and9%YTD,respectively.Thesegainscameamidloweredlevelsof inflation across advanced economies, reduced interest rate hikes and signs of a global softlandingpostpandemic.Domestically,theRBA hasshiftedtowards monetaryeasing, delivering three interest rate cuts in 2025 which have stabilised borrowing conditions and increased investor sentiment. Although global geopolitical conflicts such as the Russia-Ukraine conflict and Middle Eastern tensions continue to cloud the outlook, equity markets have priced in greater macroeconomic certainty, underpinned by strong corporate earnings and ‘improved’ household consumption. Meanwhile, recently imposed U.S. tariffs are expected to redirect trade and capital flows, creating both risks for export-oriented sectors and opportunities for Australian firms to capture diverted demand.
However, the ASX200’s muted performance relative to the MSCI World Index (+1% comparedto+2.4%)suggestsequitymarketsareenteringamorecautionaryphasewith concerns of overvaluation emerging. Australia’s forward price to earnings ratio has climbed to 16.8x which is well above the long term average of 14x reflecting an optimistic outlook on earnings expectations yet potentially prompting scrutiny around sustainability. With interest rates holding at restrictive levels and GDP growth only expected to be a mere 1.5% in 2025, investors face a more challenging environment for generating ROI. Wage growth and employment remain steady yet high average household debt of $261,492 and elevated mortgage stress due to an increased cost of living act as structural issues on consumption, leaving equity valuations exposed if earningsfalter.
From a market composition lens, large cap companies led the recovery usually aided by a lower than expected rate of mortgage delinquencies. Yet analysts forecast that in the next 12 months mid cap (5.33%) and equal weighted stocks (2.21%) may outperform large caps (0.99%) driven by market share expansion and historical outperformance during volatile cycles. While the broader macroeconomic narrative still remains one of gradual recovery, the equity market in Australia requires more selective positioning as investors balance optimism about stabilising inflation and resilient employment in the midst of risk like tepid global trade, tightening fiscal conditions and fragile household consumption.
UNITED STATES
TheUSeconomyremainedresilientinthesecondhalfof2024,amidsthighinterestrates and persistent inflation, closing the year with real GDP growth of 2.8% year-over-year. This period was marked by a global movement towards monetary easing, with the Federal Reserve delivering three interest rate cuts, from over 5% to between 4.254.50%, as underlying inflation showed signs of cooling. The US equity markets delivered strongperformance,withtheS&P500indexrisingby25%amidstinnovationandgrowth in AI and quantum computing industries. This growth was mainly driven by the ‘Magnificent7’,includingApple,NVIDIAandMicrosoftwithallthreefinishingtheyearend with market caps over US$3 Trillion. Among these, NVIDIA delivered a return of 170%, whilst Meta and Tesla each posted gains of over 60%, contributing to an overall average returnof31%bythe‘Magnificent7’companies.However,increasingdominanceoflargecap technology companies raises concerns over concentration risk in the US equity market, given they account for 34.6% of the S&P 500. Hence, any adverse performance amongthesecompaniesmayamplifyvolatilityinthebroadermarket.
The beginning of 2025 saw a slowing US economy, inflationary pressures, and reduced household consumption, amidst the uncertainty surrounding the U.S. President Donald Trump’s tariff policies. This uncertain economic outlook, coupled with a robust labour market prompted interest rates to remain unchanged at 4.25-4.50% for 5 consecutive sessions. For equities, protectionist policies injected significant downside and upside volatility in equity markets with the S&P falling 12.1% in four trading sessions, and declining 18.9% from its peak level in February. However, these tariff policies were slightly eased later in 2025, due to pushback from the U.S. Treasury bond market and fears of worsening international relations, leading to indexes quickly rebounding. The S&P 500 and Nasdaq Composite surged 27.5% and 33.4% respectively, reaching all time highs at the end of June. Meanwhile, US debt reached its highest level at over US$35.5 trillion, growing faster than US income. Thus, the US government’s persistent fiscal deficits and high interest expenses could limit the government’s ability to adequately respond during economic downturns with enough fiscal stimulus. Looking ahead, EY forecasts real GDP growth to decelerate from 2.8% in 2024 to 1.5% in 2025, with a 35% probabilityofarecession,raisingpotentialdownsiderisksforUSequitymarkets.
EUROPE
The second half of 2024 was largely favourable for European equities, as investors have felt more confident in the region’s stability when contrasted with other international players. This comes with steady inflation rates falling to 1.9%, hitting the European Central Bank’s (ECB) target rate of 2%. The tentative confidence the data provides has allowedthegradualeasingoftheECBkeyinterestrateto2%,havingmostrecentlybeen dropped another 25 basis points. Macroeconomic strength is supported by further trends of GDP growth, climbing to 0.6% after quarters of 0.2% and 0.3% growth. Seasonally adjusted GDP growth stands even more optimistic at 1.5% in the Euro area. This is a strong set of data when comparing internationally, considering the US experiencedaratherexpectedcontractionandAustraliaremainssluggishinGDP.
The result for equities in Europe has been positive. Lower interest rates means higher valuations of stocks, as new discount rates are factored into projections of profits for listed companies. The expansionary movements have also enabled greater borrowing fromfirms,acceleratingtheirgrowth.Thisultimatelyencouragesgreaterinvestmentinto the region, improving the outlook on equities. Paired with investors fleeing from the uncertainty of the US equity scene, key indexes in Europe have jumped in value. The UK’sFTSE100indexsawa9.4%increaseinvalueandGermany’sDAXindexexperienced a 20% increase, contributing to the MSCI Europe index competing closely with the MSCI USindexforthefirsttimeinitshistory.
Whilst most equities in Europe seem rosy, there remain some thorns digging into the region’s growth. Notably, France continues to struggle with political deadlock and has suffered the consequences of muted growth - the French CAC 40 index climbed only 5.02% in the past 6 months, far lower than comparables in the region. Tariffs have also taken their toll on investor confidence, leading to industries such as auto and chemicals falling 1.5% in the value of its constituent equities. Finally, whilst generally the reviving strength of the euro has been good at mitigating costs, it does have the side effect of dampening some export heavy equities. In particular, German auto manufacturers like Mercedes and French luxury companies like LVMH experienced significant losses in value - LVMH itself dropped 24.5% in stock price from the year to date. Despite these
ASIA
Asia’s economic expansion remains positive, however, uneven as of mid-2025. China’s GDP grew 5.4% year-on-year in Q1 2025, surpassing expectations, although momentum is cooling. A Reuters poll forecasts China’s full-year 2025 growth at 4.6% (down from 5.0% in 2024), with Q2 growth slowing to ~5.1% amid trade tensions and a protracted property downturn. In contrast, India’s economy surged 7.4% in Jan-Mar 2025, the fastest among major economies, driven by construction and manufacturing. Japan’s Q1 GDP was flat (-0.2% annualized) as consumer spending barely grew and growth for 2025 is projected around 0.7% amid export headwinds. Vietnam is a standout, posting 7.5% GDP growth in H1 2025 (7.96% in Q2 alone), driven by a +18% surge and new U.S. trade deals. Overall for the region, the IMF projects APAC growth to moderate to ~3.9% in 2025, down from 4.6% last year, as softer external demand and policy uncertainty weigh onseveraleconomies.
Inflation pressures in Asia have eased in 2025, allowing central banks to shift toward support. China’s inflation remains subdued, with CPI at 0.1 percent in June after slight deflationinMay.TheGDPdeflatorhasdeclinedforninestraightquarters,promptingthe PBOC to cut lending rates to record lows in May (1 year at 3.0%, 5 year at 3.5%), with further easing expected. In contrast, Japan’s core CPI rose to 3.7 percent in May, a two year high. Despite pressure to tighten, the BOJ has held off amid soft growth and forecasts of inflation returning to 2% by year end. Markets now expect a delayed hike, possibly in early 2026. Lower food prices and strong fiscal management have supported easing. Many regional central banks have now paused or reversed earlier hikes. With inflation under control and the Fed on hold, Asia’s monetary policy has become more growth oriented. Overall, Asia’s stable or falling inflation, alongside the Fed’s plateauing rates,hasledtoamoregrowthsupportivemonetarystanceacrosstheregion.
Onthehouseholdside,consumerspendinghasbeenrobustineconomieslikeIndiaand Indonesia, driven by lower inflation and improving labor markets. India’s private consumption grew ~6% YoY in Q1 2025, slightly slower than late 2024, but still a healthy clip that accounts for over half of GDP. In SE Asia, domestic demand remains a pillar: Indonesia’s consumer confidence is high, and Vietnam’s retail sales are buoyant alongside its export boom. By contrast, consumer demand in China has underperformed, reflected in outright price deflation earlier this year and only 0.1% CPI
Despite global uncertainty, Asian equities have generally delivered solid YTD gains, with performance varying by market. Robust liquidity and a tech led rally have lifted several indices, though China’s equity rebound has been more muted. Within the region, tech and growthoriented stocks have outperformed, helping markets like South Korea and Taiwan (heavy in semiconductors)surgeonimprovingchipdemand and investor optimism. In contrast, markets more exposed to commodities or tourism have lagged. YTD price returns for some key indices include: 1) MSCI Asia ex-Japan: +15.3% (USD), a broad gauge buoyed by tech and large-cap Chinese internet names’ resurgence in Q2, 2) India Nifty 50: +5% YTD, as Indian equities hit record highs on strong domestic inflows and a “Goldilocks” macro mix (high growth, low inflation) 3) China CSI 300: +2% YTD. Mainland Chinese stocks have underperformed, reflecting cautious sentiment amid China’s slow recovery and property risks 4) Japan Nikkei 225 ≈ 0% YTD (flat). The Nikkei rallied to39-yearhighsinQ2,butthosegainslargelyjust offsetadipearlierin2025.
Higher-growth sectors have led Asia’s rally. Information technology and internet stocks saw a strong rebound in 2025 e.g. China’s internet giants and South Korea’s chipmakers were notable winners. This helped shrink the performance gap between dividend focused equities and growth stocks in Asia during the first half.Largecapcompaniesgenerallyoutperformed mid caps, as investors gravitated to quality and liquidity amid global volatility. Meanwhile, more cyclical sectors like energy and materials have been relatively subdued, given softer commodity pricesandChina’sslowerindustrialmomentum.
FIXED INCOME
INTRODUCTION
At its core, a bond is a form of loan where an investor lends money to a borrowertypically a government, corporation or local authority. In return, the borrower commits to making regular interest payments at a fixed rate for a defined term, after which the originalloanamount(theprincipal)isrepaid.
This section explores the main factors driving fixed income markets, with a focus on developmentsinUS,Australian,andChinesebondmarketsoverthepast12months.
HOW DOES A BOND WORK?
Bondholders receive interest payments, known as coupons, which are determined by the bond's stated interest rate. The value of a bond on the secondary market is closely tied to its yield to maturity (YTM), which reflects the total expected return if held until it matures.
Market conditions, such as economic outlook, investment horizon and perceived risk, all influencethecouponratesofferedbynewbonds.
KEY DRIVERS
Interestratesandbondpricestendtomoveinoppositedirections.Wheninflationrises, central banks often respond by raising rates, which makes the fixed returns of existing bondslessattractiveandpushestheirmarketpriceslower.
Thistrendhasbeenespeciallyapparentinrecenttimesasinflationhasunderminedthe real value of income from fixed-interest investments. Bonds with longer maturities are generally more exposed to these shifts, as they lock in returns over a longer horizon. Depending on prevailing market sentiment, bonds may trade above (at a premium) or below(atadiscount)theirfacevalue.Discountbonds,perceivedaslessappealing,fallin pricetoofferinvestorsahigheryieldascompensation.
YIELD CURVE
The yield curve illustrates the returns offered by government bonds over various maturities, with the x-axis representing term length and the y-axis showing yield. Typically, yields rise with longer maturities, resulting in an upward-sloping curve that reflectstheaddedriskoftyingupcapitalforalongertime.
Occasionally, the curve inverts -here short-term yields exceed long-term ones - signalling market expectations of economic slowdownorrecession.
DEFAULT RISK
When investing in bonds, one must consider the risk that the issuer might fail to meet its financial obligations - either interest or principal repayments. This is known as default risk and can resultintotallossofcapitalfortheinvestor.
Credit rating agencies evaluate issuers' financial health and assign ratings to indicate their likelihood of default. Bonds with higher ratings are viewed as safer, while lower-rated bonds offer higheryieldstocompensateforincreasedrisk.
WHAT ARE GOVERNMENT BONDS?
Issued by a national government and typically denominated in its domestic currency, government bonds are regarded as low-risk investments. Examples include Australian Commonwealth GovernmentBondsandUSTreasuries.
Thesesecuritiespayafixedrateofinterest-usuallysemi-annually - until maturity. Proceeds from government bonds are used to finance public projects and service existing national debt. Given the low likelihood of sovereign default, these bonds often offer lower yields than their corporate counterparts, reflecting their relativesafety.
US T-BONDS
One way a government can raise money is by issuing bonds. A treasury bond is considered one of the safest investments, where you provide a loan to the government that pays fixed interest and will return the bond’s face value when it matures. U.S. treasury bonds, in particular, are regarded globally as a ‘safe haven’ asset, attracting investorsintimesofuncertainty.ThebeginningofthisfinancialyearsawaweakeningUS labour market, resulting in declining inflation expectations. Therefore, a series of Fed rate cuts triggered an increase in bond prices, resulting in a lower yield of 3.61% (the totalreturnexpectedonabondifheldtomaturity).Inflationbegantorisesignificantlyin January, resulting in sustained high interest rates, which, along with the inauguration of PresidentTrump,severelyshapedexpansionarymarketexpectations.
At this point, US debt was $36.1 trillion, surpassing the record high debt-GDP ratio of WW2. Hence, the market deemed Trump’s plans of tax cuts and increased government spending as unsustainable, increasing the risk associated with the Treasury bond. This decreased demand, raising bond yields to 4.8%, the highest of this fiscal year. However, at the announcement of Trump’s reciprocal tariffs in April, treasury bonds decreased to 3.98%alongwithequities,deviatingfromthetypicalinverserelationshipbetweenbonds and equities (bonds are typically considered a hedge against a declining equity market). Thiswaslargelyduetoglobaldeleveragingandwide-scalesalesellofofUStreasuriesby hedgefundsandglobalholderssuchasChina.
The recent announcement of Trump’s “Big Beautiful Bill” has projected to increase federal debt by 3 to 5 trillion USD, causing investors to demand high yields on treasury
CHINA T-BONDS
Amidst China’s protracted property downturn and postpandemic recovery, investors have continued shifting towards long-term government bonds as a perceived safe haven. Persistent deflation, subdued consumer spending, and expectations of further monetary easing have sent Chinese government bond yields to new lows, with the 10year onshore bond yield falling below 2.0% in May 2025, its lowest since 2002. In response to mounting concerns over l sector stability, the PBoC has again intervened in bond markets, actively purchasing and reselling long-term governmentbonds to prevent destabilising price swings. This mirrors previous actions taken to avert systemic risks linked to financial institutions’ overexposure to long-duration bonds, particularly local government financing vehicles
Oninternationalmarkets,risingglobalinterestratesearlierin thefiscalyearpushedupborrowingcostsforChineseissuers abroad. Chinese companies and state-owned banks issued 151.6 billion yuan (US$21 billion) in offshore bonds during the first half of 2025, marking a year-on-year decline, and representing the lowest first-half issuance volume since 2015. In the real estate sector, China continues to face acute challenges.Thetotalvalueofunsoldandincompletehousing projects is estimated at around RMB 27 trillion (US$3.7 trillion) as of mid-2025. To address this, Beijing expanded its housing rescue fund in April 2025, earmarking an additional 500 billion yuan (US$69.7 billion) to purchase vacant housing stock and complete unfinished developments. However, this places additional fiscal strain on local governments already grapplingwithunsustainableLGFVdebt,estimatedatover70 trillion yuan (US$9.7 trillion). China’s local governments remain under financial stress, with fiscal deficits persisting despite central government support. Medium-term stability depends on structural reforms, including consolidation of local government debt and enforcement of stricter financing
Strengthening LGFV oversight and expanding the national bond resolution framework remain essential steps to preserve financial stability and mitigate long-term systemic
CORPORATE BONDS
Corporate bonds are debt securities issued by companies to raise capital, offering investorsregularinterestpaymentsandthereturnofprincipalatmaturity.Thesebonds are typically classified by agencies like S&P, Fitch or Moody’s into buckets to determine how risky the investment is. Compared to government bonds, corporate bonds carry a higher risk of default, which is reflected in their higher yields. For instance, as of mid2025, the yield on 10-year U.S. Treasury bonds was approximately 2.0%, whereas investment-gradecorporatebondsofferedanaverageyieldof5.18%.
In 2025 as a response to economic uncertainties and policy shifts, such as the introduction of new tariffs during the Trump administration, investors have increasingly turned to corporate bonds as a means to hedge against risk, allowing investors to move out of a volatile stock market and avoid a weakening US treasury bond at the beginning of2025.
AUSTRALIAN T-BONDS
Throughout the past fiscal year, the Australian fixed income sector, particularly within the government bonds, saw several key shifts and trends. The return to budget deficits and increased government spending necessitated a greater issuance of Australian Government Securities (AGS) to fund these initiatives. This increased supply with the gradual unwinding of the RBA's past bond holdings, led to a projected increase in the "free float" of AGS available to private investors. This increased supply generally puts upwardpressureonbondyields,consequentlyloweringbondprices.
ThelastfiscalyearsawmanychangestoRBA’smonetarypolicyandyieldsafterholdinga cash rate of 4.35% for much of 2024. However the RBA began an easing cycle in February2025withahawkishinnaturecutto4.1%,representingarelieftointerestrate borrowers however still garnering a focus on inflation. With the anticipation of further interest rate cuts amongst decreased inflation, the cash rate reached a low of 3.85% in July 2025. This dovish tone by the RBA reflects disinflation and a softer outlook for potential market growth, however is underpinned by more confidence on the inflation outlook coupled with the growing downside risks from increased economic uncertainty due to US trade policy. Trimmed mean inflation for the March quarter printed at 2.9%, back within the RBA’s target range, contributed to the AGS yield curve reaching its steepestlevelsince2021.
FX
INTRODUCTION
Foreign exchange (FX) refers to investments involving currencies – buying a particular currency (the quote currency) by selling another currency (the base currency). These investmentsarefacilitatedbybilateralexchangerates,whichmeasuresthevalueofone unitofacurrencybasedonthevalueofanothercurrency.
This section dives into key drivers of Australia’s exchange rate and recent trends in notableexchangerateswiththeUSD(theglobalreservecurrency).
FX MARKETS
Asthelargestandmostliquidfinancialmarketworldwidewith$5trillioninaveragedaily transactions, the foreign exchange market (FOREX) serves as the global marketplace for FX trading, where participants ranging from central banks to investors and corporations exchangecurrenciestofacilitatetrade,investmentandspeculation.Itoperates24/5and determinesexchangeratesbasedonsupplyanddemand.
KEY DRIVERS
Constituting a major pillar of Australia’s financial deregulation in 1983, Australia’s exchange rate was floated to allow for effective shock absorption and a more independent monetary setting. This entails the value of the AUD being now determined by forces of supply and demand in the Forex, precipitating greater volatility. Whereby, increased demand for AUD will cause it to appreciate, whilst contrarily, increased supply willmanifestAUDdepreciation.
FINANCIAL FLOWS
As the most globalised aspect of the global economy, financial flows, or cross-border movements of money for purposes of loaning and investment, have major implications on Australia’s exchange rate. For instance, capital inflows in debt and equity will mean increased demand and appreciation, whilst capital outflows will cause increased supply and depreciation, and vice versa, respectively. This has manifested during the Rebalancing Period (2012-19), whereby due to the end of Australia’s Mining Investment Booms that correlated with less inbound investment opportunities, and the accumulation ofcompulsorysuperannuationfunds($3.5tn)beinglargely invested overseas, less demand and increased supply have placed significant downward pressure on the AUD, operating in a low narrow band of $0.60-$0.70 USD since 2016.
TRADE FLOWS
Since currencies are the basic facilitators of international trade, exports and imports being bought and sold with other countries will influence the exchange rate. Indeed, if foreign buyers purchase Australia’s exports, they will first need to convert their foreign currency into AUD to conduct this transaction, hence increasing demand and causing appreciation if ceteris paribus, whilst less exports equate to less demand and depreciation. Similarly, increased domestic purchase of imports see increased supply with AUD being sold to exchange for foreign currencies,leadingtodepreciation,andviceversa.
INTEREST DIFFERENTIAL & INDIRECT INTERVENTION
Interest rate differential is the difference in domestic and foreign interest rates and further acts as a catalyst for AUD fluctuations. Correspondingly, positive interest differential means domestic interest rates are higher than overseas’, incentivising more foreign investors to invest in Australia to reap higher rewards which increases capital inflows and appreciation, and vice versa. By extension, the RBA can thereby indirectly intervene in the Forex through monetary policy by adjusting the cash rate to influence theAUD,aswellasthroughothermeasureslikejawboning.
DIRECT INTERVENTION
On top of indirect intervention through interest rates, the RBA can ‘dirty the float’ and directly intervene in the Forex if the exchange rate is undesirable. This is performed through their foreign reserves, whereby to achieve an appreciation, the RBA will sell foreign currencies to buy AUD whilst buying foreign currencies by selling AUD will cause depreciation. For example, this was used to combat a large rapid AUD depreciation duringtheGFC.
Terms of trade (ToT) refers to the price of exports relative to price of imports. Hence, an improved ToT signals export prices outpacing imports’andwillappreciatetheexchangerate through more demand. However, ToT is very cyclical in Australia by virtue of its narrow export base whereby 2/3 comprises commodities—an extremely volatile sector with demand fluctuations underpinned by unpredictableevents.
SPECULATION TERMS OF TRADE
Since floating exchange rates are determined by the price mechanism, 95% of Forex transactions are speculative, which has informed the volatile nature of FX trading and caused many businesses to hedge transactions to circumvent currency risks. Traders will buy currencies in anticipation of a future appreciation to reap capital gains, and will sell if expecting an upcoming depreciation to avoid losses. This volatility is explicated in the AUD currency sell-off to a record-low $0.57 USD during Covid as the market became wary of an inbound Australian recession due to close trade ties with China suffering from pandemic-induced supply chainbottlenecks.
USD/AUD
FollowingtheendofMiningInvestmentBoomIIwheretheAUDappreciatedtoahistoric high of $1.10 USD in 2011, Australia’s international competitiveness in price elastic nonmining exports was erased and Australia became a two-speed economy with only commodities lifting export growth. Therefore, as GFC’s financial contagion disrupted global demand, falling commodities and export revenue have caused AUD to depreciate to $0.66 by 2016, alongside falling domestic cash rates to combat low growth as Australiatransitionedawayfromminingtowardsservices.Andoverthepastdecade,the AUDhashoveredwithinanarrowrangeof$0.60-$0.70,evendespitepost-Covid’sterms of trade boom and record $670bn ‘explosion in exports’ that theoretically place upward pressuresonthecurrency.
Australia’s exchange rate has remained stable and low due to sustained negative interest rate differential, with peak cash rate post-pandemic to curb inflation at 4.35%, falling short of US’s 5.5. And as of July 2025, the Fed Funds rate still stands at 4.5%, above the RBA’s 3.85% that continues this favourable yield gap for the US with financial flows drawn overseas. This has added to downward price pressures and is reified by Australian investors’ own increased appetite for US equities and bonds. Additionally, Australia’s export performance has softened due to weaker demand since 2024 from China and falling commodity prices and terms of trade, precipitating the re-emergence ofacurrentaccountdeficit,furtheringdepreciation.
Despite this, the AUD has shown relative resilience in the first half of 2025, as expectations of a US rate cut cycle beginning in late 2025 have curbed further gains in the USD, whilst improved consumer confidence and speculation following the ceasefire surroundingTrump’stariffturmoilwithChinahasfurthersupportedtheAUD.Therefore, amalgamated with Australia’s stable economic outlook, supported by high net overseas migrationandsteadyconsumerspending,asharperdepreciationhasnotoccurred.
Looking ahead, CBA and ANZ economists project that the AUD/USD will remain rangebound between $0.65-$0.68 through late 2025. Much will hinge on the Fed’s timing and paceofinterestratecuts,aswellasanysignsofareboundinChineseindustrialactivity.
While the medium-term bias remains slightly bearish for the AUD, consensus forecasts suggestonlymodestfluctuationsinthemonthsahead.
USD/EUR
The Euro witnessed notable fluctuations from late 2024 through to July 2025, primarily influenced by diverging monetary policies, inflationary pressures, and geopolitical developments. The USD/EUR exchange rate hovered near parity (€1.00/USD) in late 2024, reflecting robust dollar strength driven by the Federal Reserve’s aggressive tighteningcycle,whichculminatedinapeakinterestrateof5.75%byDecember2024.In contrast, the European Central Bank (ECB), facing persistent core inflation of approximately 4.2%, continued its own aggressive tightening cycle, raising its deposit facilityratetoahistorichighof4.50%byJune2025.
By early 2025, the interest rate differential had narrowed significantly, prompting capital flows back into euro-dominated assets. Markets increasingly viewed the Fed’s tightening cycle to be nearing completion, even as expectations grew for the ECB to maintain a hawkish stance through late 2025. In turn, the euro steadily appreciated, with the USD/EUR rate falling from approximately €0.97 in December 2024 to around €0.92 by July 2025. Speculative flows contributed to the momentum behind the rally, particularly inQ2of2025,asfuturespositioningshifteddecisivelyinfavouroftheeuro.Bymid-June, non-commercial traders held a net long position of 101,500 contracts, the highest level innearlyninemonths,signallinggrowingconfidenceinsustainedeurostrength.
An improved trade balance in the eurozone offered additional support to the euro in early 2025. Natural gas prices saw a drop of roughly 33%, from early-2025 peaks of about €75/MWh to approximately €50/MWh by April 2025, thus easing pressure on the bloc’s energy import burden and improving its terms of trade. Both increased LNG inflows and tentative signs of easing tensions in the Russia-Ukraine conflict supported the energy reprieve, despite sanctions remaining in place. Reflective of these improvements, the euro area recorded a current account surplus of roughly €20billion in April 2025, thus highlighting more stable external balances and reinforcing investor confidenceineuro denominatedassets.
Looking ahead, analysts forecast modest appreciation of the euro into late 2025, with consensus from Deutsche Bank and Goldman Sachs projecting a EUR/USD rate of approximately €0.90 to €0.91 by year-end. While ECB policy direction and general economic resilience of the Eurozone remain key drivers, risks persist from potential geopolitical escalations or renewed energy instability. Thus, the outlook for the euro remainsbalanced,withfurthergainscontingentonexternalconditionsremainingstable andmonetarypolicydivergencepersisting.
USD/RMB
The Chinese RMB has experienced major fluctuations within a relatively narrow band, withtheUSD/CNYexchangeratehoveringbetween7.10and7.35,reachingitslowestin late September of 2024 and peaking in early April of 2025. The offshore yuan (USD/CNH) encountered similar depreciation pressures, nearing 7.43 at its summit. Thoughtheoverallrateisdeemedtobequitesteadygiventhesmallrangeoftheband, theseaggressivemicrofluctuationscanbeattributedtodivergentmonetarypoliciesand trade dynamics between the two countries. However, the USD/RMB exchange still remains highly complex and extremely sensitive to macroeconomic and geopolitical developments.
Afteranaggressivehikingcyclefrom2023-2024whichsawtheyuandepreciatedownto almost7.00,theU.SFederalReservehassinceadoptedamoreneutralstance,cautious of further cutting of rates despite a decrease in inflation. In H1 2025, China has attempted to stimulate a sluggish property sector through mortgage rate cuts and providing more leniency on down payment requirements to make housing more affordable and increase demand, with megacities such as Shanghai and Beijing able to cutthedeedtaxforbuyerstoaslowas1%fromaprevious3%.Furthermore,Chinahas alsoencouragedlocalgovernmentstoacquireunsoldpropertiesandconverttheminto affordable housing, and has also provided fiscal support for state-owned enterprises to tackletheissueofurbanrenewalinanattempttoincreaseurbanresidentsfrom67%to 70% in five years. To boost purchasing power and income, China has planned to promote reasonable wage growth in key sectors, expand employment opportunities in smallandmedium-sizedenterprises,andalsosupportvocationaltrainingprograms.
It is no surprise that Trump’s economic policies greatly contributed to the depreciation pressure experienced by the yuan in early 2025. The abrupt escalation of tariffs, reaching 145% on China in early April, hiked exchange rates of both USD/CNY and USD/CNH, resulting in select intervention in FX markets by the People’s Bank of China (PBoC). Attempting to continue their currency stability objective, PBoC set the USD/CNY fixingabove7.20forthefirsttimesince2023.However,evenamidsttheseextraordinary pressures, it peaked at a little over 7.21, signalling PBoC’s limited tolerance for a weaker yuanandshowcasingtheirsuccessatavoidingsharpdepreciation.
Looking ahead, there are mixed conclusions drawn from various analyses. With the USD/CNY exchange currently sitting between 7.10 and 7.20, the long-term trajectory seems to suggest yuan appreciation given China’s aims for increased global influence. Despite this, the short-term dynamics still seem to favour a strong and stable dollar, implyingtheremaybeminimalchangeintheexchangeratethroughtotheendof2025.
USD/JPY
The Japanese yen has regained ground in 2025 following a sharp depreciation earlier in the year. In the second half of 2024, the yen remained under pressure, being traded in the ¥150-¥155 range before dipping to ¥140.66 in mid-September. The USD/JPY exchange rate peaked at ¥158.22 on January 8 2025, before strengthening to approximately ¥147 by mid-July. The year-to-date average of ¥148.28 reflects the influence of U.S. monetary policy, evolving trade dynamics, and Japan’s inflation outlook onFXmarkets.
Early-year yen weakness stemmed primarily from the persistent interest rate differential between Japan and the United States. The Federal Reserve has maintained rates at 4.25% - 4.50%, while the Bank of Japan (BOJ) ended its negative rate regime and raised its policy rate to 0.50% in January. Despite this move, real yields in Japan remain negative, continuing to favour capital outflows and USD strength. Trade tensions have added to yen pressure. On July 8, the U.S. administration reaffirmed that Japan would face increased tariffs on autos and semiconductors unless a new deal is reached by August 1. Given Japan’s export dependence, particularly on the U.S. market, these developmentshavedampenedinvestorsentimentandcloudedtheexternaloutlook.
Domestically, core consumer inflation rose to 3.7% in May, well above the BOJ’s forecast of 2.2% for fiscal 2025. While the central bank expects inflation to ease to 1.7% in 2026 and1.9%in2027,arecentgovernment-affiliatedESPthinktanksurveysuggestsinflation could reach 2.5%, indicating potentially longer-lasting price pressures. Still, the BOJ is widely expected to maintain its 0.50% rate at its July 30-31 policy meeting, given uncertaintyovertariffimpactsandstill-subduedunderlyinginflation.
Meanwhile, political risk is rising ahead of Japan’s upper house elections. A decline in PrimeMinisterShigeruIshiba’sapprovalrating,asreportedbyNHK,hasraisedconcerns about a shift toward expansionary fiscal policies, such as consumption tax cuts. In response,bondmarketshaveweakened,withthe10-yearyieldrisingto1.595%,andthe 30-yearyieldapproaching3.17%,reflectinginvestoruneaseoverJapan’sfiscaltrajectory.
In conclusion, while potential Federal Reserve rate cuts could provide support for the yen in the second half of 2025 persistent trade tensions and growing political uncertaintysuggesttheUSD/JPYexchangeratewillremainvolatileinthemonthsahead.
USD/GBP
The USD/GBP exchange remains one of the world’s most closely observed currency pairs and has seen major changes over the last year, peaking at £0.82 in mid January 2025 and reaching its lowest most recently at just under £0.73 in the beginning of July. The rate, sitting currently at around £0.75 and on a steady rise, seems to indicate depreciation of the pound, whereas only last month had there been a gradual decrease of the rate attributed to the dollar weakness rather than faith in the pound sterling as a result of investor doubts about U.S. fiscal and tariff policies. The ever-changing nature of the exchange highlights its complexity and unpredictability, providing a perfect opportunity for analysis.
Since 2022, the pound sterling has been on a recovery journey from the “extreme low” as a result of Prime Minister Liz Truss’s so-called mini-budget. By implementing a cutting of basic rate of income tax by 1% down to 19%, abolishing the highest rate of income tax in England, Wales, and Northern Ireland which had previously stood at 45%, and reversing a plan announced in March 2021 to increase corporation tax from 19% to 25%, the policy sparked a severe sell off of the pound and U.K. government bonds, resulting in the USD/GBP exchange peaking at just over £0.92 in late September almost immediately after the policy was announced. Though this policy was delivered against the backdrop of a cost-of-living crisis and aimed to mitigate that issue, the sharp fall in the value of the pound sterling against the dollar was due to a negative reaction by markets to the increased borrowing which would be required to pay for the largest tax cuts in 50 years.
The Bank of England’s (BoE) continual slashing of interest rates has also contributed to the constant fluctuations in the USD/GBP exchange. With the BoE setting a target inflation rate of 2% in 2025, and with their projections indicating CPI inflation would peak at 3.7% in September of this year, multiple rate cuts were issued in an attempt to combat this. BoE cut rates from a 16-year high of 5.25% down to 4.25%, with this being done over four separate rate cuts in August and November of 2024, and then again in February and May of 2025, each cut being a 25 basis point decrease. Interest rate cuts generally correspond to a depreciation of the pound, and though this had initially seemed to be the case, with the first two cuts contributing to the £0.82 peak in January of 2025, the two later cuts have seemingly had the opposite effect, with the pound sterling initially depreciating, but then appreciating in value. This anomaly could be attributed to current U.S. political and economic uncertainty, with the BoE’s restrained and transparent approach to interest rate cuts benefitting the pound as compared to political pressure on the Fed which increased calls for more aggressive rate cuts. Due to the Fed’s current stance being more reserved, we have started to see the pound sterling lower in its value as of late, explaining the gradual increase in the USD/GBP exchange since July.
Future outlooks generally suggest the pound sterling will continue to depreciate in value in the short term, with multiple analysts predicting the rate to stay between £0.77 and £0.83 in the coming months. Considering the medium to long term, HSBC and ING predict USD/GBP to level out at around £0.75 towards late 2025 and early 2026, whereas Goldman Sachs is more bullish on the dollar, suggesting USD/GBP could rise to £0.78 if U.S. inflation moderates and political risks ease.
INTRODUCTION COMMODITIES
Commodities are naturally occurring materials traded for consumption or used to manufacture other goods. In financial markets, commodities refer to tangible goods bought and sold in markets. Despite their volatility, commodity markets can offer lucrativeopportunities,especiallyduringboomcyclesdrivenbypricingtrends.
This chapter explores the key instruments used to invest in commodities and highlights trendsobservedoverthepastyear.
KEY INSTRUMENTS
FUTURES
Futures contracts are the most common way to trade commodities. These agreements involve buying or selling a set quantity of a commodity at a fixed price on a future date through a futures exchange. These contracts serve as a hedging tool, helping producers and consumersmanagerisksfrompricevolatility.
Futures are traded on formal exchanges with standardised terms, such as contract size, expiration date, delivery details, and trading location. Importantly, futures trading does not involve taking physical possession of the commodity - investors are instead speculating on price movements. All trades are settled through a clearing house, which facilitates and guaranteesthetransactions.
OPTIONS
Commodity options give the holder the right, but not the obligation, to buy or sell a commodity at a predetermined price on or before a specific date. These contracts are traded either on public exchanges or privately as Over-the-Counter (OTC) deals. Options can be categorised as either call options (the right tobuy)orputoptions(therighttosell).
A call option sets a ceiling on how much an investor will pay, while a put option sets a floor for a future sale price. These instruments protect investors against adverse price movements while preserving the ability to profitfromfavourablechanges.
EQUITIES
Investors can also gain exposure to commodities by buying shares in companies involved in commodity production - such as mining, energy, agriculture, or farming firms. These shares are usually traded on stock exchanges.
Australia is a major commodity producer, with firms like Rio Tinto (ASX:RIO) and BHP (ASX:BHP) playing a prominent role. Investors often include such stocks in their portfolios as ahedgeagainstcommoditypricemovements.
Commodity Exchange-Traded Funds (ETFs) allow investors to gain exposure to a specific commodityorabroadcommodityindex.These funds track the price performance of one or morecommodities.
If the ETF tracks a specific commodity or commodity index and prices rise, investors typically see gains. ETFs may be backed by physical commodities, futures contracts, or equities and are usually traded like regular stocksonanexchange.
NATURAL GAS
The financial year began with US Natural Gas production not met with an increased demand, with European storage levels at record highs of 90%, causing a 32% decrease in natural gas prices until late July. The entirety of Q3 was influenced by speculative surges, notably in September, due to fears around Russian supply flows and rising tensions in the Middle East, causing price increases to USD 2.97/MMBtu (Million British thermal units). January 2025 saw LNG prices rise 26% with the expiration of the RussiaUkrainegastransitagreement,closingamajorsupplyofgasforEurope.
Concurrently, record cold temperatures across America and Asia impaired gas productionalongwithincreasingdemandforheatingandpowergeneration,resultingin sustained high prices during Q1. Therefore, the US strongly benefited from its high spot exposure, reaching record volumes of 8.3Mt/month of LNG exports, with other key exporters,includingAustralia,benefitingfrommorestableearnings.
As temperatures began to stabilise, heating demand weakened with a remaining oversupplyofnaturalgasdrivingpricesdowntoUSD3/MMBtufrom$4.13USD/MMBtu. Further volatility followed in June 2025 when Iran threatened to close the Strait of Hormuz through which 20% of global LNG volumes rely on, causing a brief inflation of spot prices. Ultimately, natural gas was heavily influenced by supply constraints from geopoliticaltensionsaswellasvolatiledemand,towhichproductionhasbeenunableto optimallyrespondto.
2025 has seen iron ore prices remain relatively steady, trading within a narrow band of US$90-100/tonne. This stability follows a sharp decline in 2024, when oversupply and lower Chinesesteeldemand pushed prices down from US$140/tonne to around US$105-110/tonne by mid-year. While inventories have remained elevated since late 2023, sluggish recovery in China’s property and infrastructure sectors has weigheddownonglobaldemandforiron.
Despite the challenging price environment, Australia’s iron ore sector has remained resilient with export revenue in 2023-24 reaching $136 billion, driven by increased demand from emerging Asian and Middle Eastern markets. This diversification has helped offset China’s lower demand which has been our largest iron exporter in the past decade and hence highlights Australia’s strategic shift towards broadening its traditional
Nevertheless, export earnings are still forecasted to decline to $107 billion in 2024-25 and further to $83 billion by 202829 (real terms), reflecting anticipated price softening. Persistent weakness in Chinese real estate and limited stimulus are likely to placecontinueddownwardpressureoniron ore prices in the medium term. Further, increased output from mines such as Simandou in Guinea is expected to add further competition to Australia’s export market and increase global supply. As a result,Australianproducers mayfacetighter margins and heightened pressure to remain
OIL
The financial year began with oil markets stabilising after the post-pandemic supply disruptions, with global inventories returning to average levels and OPEC+ maintaining moderate production cuts. Prices softened during early Q1, falling by nearly 15% as slow industrial activity in China and high interest ratesintheUSweighedondemand.However, thesecondhalfofQ1sawareversal,drivenby growing tensions in the Red Sea and Middle East, particularly after renewed drone attacks on shipping lanes, pushing oil prices up to US$88perbarrelinMarch.
Q2 was marked by heightened volatility, largely due to ongoing disruptions in Russian exports and unexpected refinery outages in the US Gulf Coast, which tightened supply margins. In April, oil prices briefly spiked by over 10%, before retreating in May amid weaker-than-expected economic data from Europe and increased crude output from Brazil and Guyana. Despite this, global benchmark prices remained elevated throughoutthequarter.
GOLD
Gold has rallied sharply in 2025, gaining 37.55% year-over-year as of 13 July and reaching an all-time high of USD 3,434.40/oz on 21 April. This surge has been driven by a combination of macroeconomic and geopolitical risks, including renewed global trade tensions under the Trump administration and escalating military conflicts, which have fuelledmarketvolatilityandabroadshifttorisk-offpositioning.
Traditionally supported by a weaker U.S. dollar, lower interest rates, and its safe-haven status, gold continues to benefit from its low correlation with other asset classes. More recently, it has attracted inflows as both a hedge against currency debasement and a non-yielding alternative to U.S. Treasuries. Central banks and institutional investors, particularly in the U.S., have been increasing reserves to capitalise on gold’s inverse relationshiptothedollaranditsresilienceinthefaceofrecessionrisks
Sofarin2025,globalgoldETFinflowshaveincreasedbytheequivalentof10%ofglobal reserves, reflecting a notable shift in demand away from traditional jewellery consumption, which has historically accounted for around 50% of annual gold usage, toward investment-driven demand. This has caused analysts at JPMorgan and Goldman Sachs to forecast gold prices averaging USD 3,650/oz by Q4 2025 and potentially reaching USD 4,000/oz by mid-2026, further resolving a market outlook that positively favoursgoldgrowthoutlooksinaperiodofhigheconomicvolatility.
REIT
INTRODUCTION
A Real Estate Investment Trust (REIT) is a regulated investment vehicle that owns, develops, or finances income-producing real estate, enabling investors to access professionally managed property portfolios without directly purchasing physical assets. REITs derive income primarily through rent and property appreciation and are required to distribute at least 90% of their taxable earnings to unitholders, making them an attractiveoptionforincome-focusedinvestors.
REIT CLASSIFICATION
REITs are generally classified into two types: equity REITs, which invest directly in real estate assets and generate income through rental streams, and mortgage REITs, which lend to real-estate owners and earn interest income. The Australian market predominantlycomprisesequityREITs.
AustralianREITsoftenoperatewithafundsmanagementdivisionresponsibleforcapital raising and managing investment mandates, and a development division that undertakestheacquisition,construction,andredevelopmentofassetstoenhancelongterm returns. This integrated structure allows REITs to pursue both stable income and capitalgrowthstrategies.
In portfolio construction, listed REITs are typically considered core investments due to their liquidity, transparency, and stable income. In contrast, unlisted or sector-specific REITs are often classified as alternative assets because of their lower liquidity, higher risk,andspecialisedexposure.
RETAIL
Retail real estate includes properties designed to facilitate the sale of goods/services directly to consumers. These assets include: enclosed malls, neighbourhood shopping centres and lifestyle precincts. This sector is inherently cyclical, responding to consumer confidence, wage growth andhouseholddisposableincome.
A strong tight labour market has manifested postpandemic with unemployment still low at 4.1%, supporting disposable income through 1.4% real wage growth in 2025 alongside 2025/26 Budget’s tax cuts. This helps bolster retail growth, which is further propelled by steady 13% population growth in Australia by 2033 via migration, whilst constrained new supply with new shopping centre completions being only around 70% of the 20-year averageincreasingdemandandrentgrowth.
However, structural challenges like growth in ecommerce, with online retail now constituting 14% of total sales, a 60% rise since 2020, reduces physical stores demand, whilst persistent cost-ofliving pressure with cash rate remaining high at 3.85% and low consumer confidence from postCovid’s inflationary aftermath curbing discretionary spendingandretaildemand.
OFFICE
The office sector comprises of commercial properties designed for business use, including premium-grade towers in CBDs, suburban office parks and mixed-use developments with office components.
Post-Covid, a return to office momentum has seennetCBDofficeabsorptionreaching163,500 sqm in 2024, the highest since 2018, driven by a shift toward full-week office mandates to enhance productivity and collaboration. Further, a flight to quality trend has emerged whereby occupiers are consolidating space into newer, sustainable and well-located buildings, willing to pay higher rents for improved workplace experience, whilst minimal supply pipeline with new supply forecasted to decline 33% below 5year average limits future vacancy risks and supportsrentalstability.
However, key headwinds include high incentives surging to a record high 40% (September 2024) fromhighvacancyratesforcinglandlordstooffer more attractive deals to retain clients, as well as flexible lease structures with increased incorporations of break clauses and shorter weighted average lease expiry (WALE) that erodes landlord returns. Meanwhile, free cash flow is also compressed by landlords heavily investing in ESG compliance that propounds capexburden.
INDUSTRIAL
Industrial real estate includes warehouses, logistics hubs and manufacturing facilities. It has shown significant resilience in recent years despite the Covid pandemic due to various factors. Firstly, e-commerce growth has seen ongoing demand for last-mile logistics and fulfilment centres in prime locations supporting rental growth and low vacancy. Secondly, supply chain risks and heightened geopolitical tensions have caused rising onshoring of manufacturing domestically, fuellingindustrialabsorption.
However, rental growth has been slowing following the surge with national vacancy ratesrisingto1.9%inthesecondhalfof2025fromnear-zerolevels,whilstpotential oversupplymayariseas3.8millionsqmoflogisticsspaceisexpectedtocompletein 2025anditstake-upat1.7Msqmissignificantlybelow10-yearaverage.
DATA CENTRES (AI)
Asanalternativesector,datacentresarecriticalinfrastructureassetshousingdigital data storage and processing equipment. Rising digitisation, AI and cloud computing has proliferated demand with Australia ranking 5th globally in data centre build-out capacity;thesectorisforecasttodoubleto$40Mby2028.Indeed,majortechTNCs as key tenants like Amazon, Google and Meta have fuelled demand for hyperscale and edge facilities. However, whilst AI drives long-term demand, emerging innovationslikeDeepSeek’slow-storagechatbotshighlightpotentialoverestimations indatacentrecapacityrequirements.
RESIDENTIAL
Theresidentialsectorencompassespropertiesdevelopedforpeopletolivein,including detached houses, apartments, townhouses and build-to-rent (BTR) developments, the largest real estate sector. Unlike commercial sectors, residential is more directly impacted by interest rates, government incentives and demographic shifts, and plays a keyroleinnationalaffordabilitydebatesandsocialinfrastructureplanning.
Since Australia’s net migration remains strong with sustained growth forecast through 2030, this fuels demand for both owner-occupied and rental housing, especially in urban centres like Sydney and Melbourne. Capital growth and rental yields are further supported by chronic undersupply of national housing below demand due to constructiondelaysandplanningconstraints.
However, high interest rates post-Covid with cash rate still at 3.85% means high borrowing costs that increase mortgage stress, particularly among first home buyers and leveraged investors, whilst rising labour and material costs alongside builder insolvencieshavedelayednewsupplypipelinesandelevateddevelopmentrisk.
AUSTRALIA ECONOMIC OVERVIEW
After several years of subdued activity, Australia’s commercial property market has shown promising signs of recovery in 2025 building on its momentum in 2024, making REITs an ever more attractive asset class for investors. A combination of falling interest rates,renewedconsumerdemandandbroadermacroeconomictrendshaveturnedthe tideinkeyandemergingsectors,thoughsomecontinuetostruggle.
The most important development in 2025 was the Reserve Bank of Australia’s decision tocutinterestrates.Afterpeakingat4.35%,thecashratehasbeenreducedto3.85%as ofJulyallowinginvestorstofinancepropertyacquisitionsatlowercosts.Thismarkedthe first easing cycle since the COVID-19 pandemic and was a significant turning point for real estate markets, with the $6.9 billion AUD of investment volume in Q1 2025 the highestQ1totalsince2022.
RETAIL SECTOR
To the surprise of investors, the retail sector has had a resurgence in 2025. Strategic upgrades undertaken by landlords in repurposing space for service-based retailers such as medical clinics has adapted the sector to the rise of e-commerce. A scarcity of retail-zoned land has also limitedthesupplypipelineforretailassets,positioningthe sector for increased demand and potential value appreciation.
Thesectorreported$1.2billionininvestmentthroughQ1 2025 as cap rates for prime neighbour centres compressed by 25 - 50 basis points over the year, with REITS such as Charter Hall making large-scale purchases includingCorioVillagefor$148million.
SELF-STORAGE SECTOR
The Australian self-storage sector recorded one of the strongest performances of the year. Rising housing prices in major cities with Sydney’s median home price exceeding $1.6 million has led many households to downsize,increasingdemandforself-storageunits.
Occupancy rates in self-storage facilities averaged over 90% nationally, with some operators reporting rental growth above 8% year-on-year. REITs have looked to capitalise on the growth of this alternative sector with BlackRock buying a controlling interest in Australian selfstorage company StoreLocal for $400 million AUD as part of its plan to create a $2 billion AUD portfolio of selfstoragefacilities.
OUTLOOK FOR 2026
Looking ahead, further rate cuts are expected in 2026, providing continued support for transaction activity and debt refinancing. Investors will likely remain selective, favouring resilient sectors. While market conditions are not yet back to pre-COVID peaks, 2025 has laid the foundation for a more stable and real estate landscape whichwillbenefitREITinvestors.
CHINA ECONOMIC OVERVIEW
In the past financial year, China’s commericial property marked has shown signs of tentativestabilisationafteryearsofvolatility,drivenbyamodesteconomicreboundand supportive government policies. Investor sentiment has improved slightly, particularly in key metropolitan cities, as monetary easing and policy-driven stimulus have started to feed through to the real economy. REITs, a relatively new but rapidly growing asset class inChina,havecontinuedgainingtractionamonginstitutionalandretailinvestorsseeking diversificationandincomestability.
Akeydriverin2025wasthePBoC’songoingmonetarypolicyeasing,includinga10basis point reduction, bringing the 1-year LPR down to 3%. Lower borrowing costs have improved credit availability for developers and buyers alike, contributing to an uptick in commercial real estate transactions. However, markets are still softening where in Q1 2025, China recorded ¥56 billion RMB in commercial property investment volume which isa13%decreasefromthepreviousyear.
PROPERTY CRISIS
The shadow of the residential property crisis continues to loom over the broader real estate landscape. Large developers such as Evergrande and Country Garden remain under restructuring, while buyer confidence in off-plan housing remains weak. Although government-ledrescueefforts,includingtheestablishmentofa¥300billionRMBfundto purchase unsold stock have helped stimulate the market, China’s real estate remains structurallyimbalanced.
Unsold residential inventory across cities has reached multi-year highs, leading to weak land sale revenues for local governments and broader fiscal strain. While new developments have declined, completed but unsold stock continues to weigh on prices. Policymakers are prioritising completion of existing projects and stabilising homebuyer sentimentovernewspeculativegrowth,signallingalongbutdeliberatepathtorecovery.
OFFICE VACANCIES
China’sofficemarkethasfacedcontinuedheadwindsin2025,particularlyinlargeurban centres. The rise of hybrid work, an oversupply of office space, and ongoing cost-cutting by tech and finance firms have pushed vacancy rates higher. In cities like Beijing and Shenzhen, Grade A office vacancies have climbed to 25% and 20% respectively, with rentsdeclining3–5%year-on-yearinsomesubmarkets.
Despitethis,foreignanddomesticREITshaveshowninterestinwell-located,high-quality office assets at discounted valuations. Institutional landlords are actively repositioning properties with amenities and flexible space formats to attract stable tenants. While overalldemandremainssoft,flight-to-qualitytrendsareemerging,offeringopportunities forlong-terminvestorsfocusedoncoreurbanmarkets.
FOR 2026
Looking ahead to 2026, the commercial property market in China is expected to remain cautiously optimistic. Further monetary easing is possible, and government-led efforts to stabilise the property sector will likely continue. REITs are anticipated to expand in both volume and investor participation as transparency improves. Although challenges such as oversupply in some regions and developer debt overhang remain, 2025 has provided a base for a more resilient and investor-friendly propertylandscapemovingforward.
INTRODUCTION ALTS
Private Equity (PE) invests in established companies, aiming to improve operations and increasevaluebeforeexitingthroughasaleorIPO.Ittypicallyinvolveslargeinvestments andmajorityownership.VentureCapital(VC)fundsearly-stagestartupswithhighgrowth potential, especially in tech, taking minority stakes and offering guidance. PE focuses on stabilityandefficiency,whileVCembracesriskforinnovationandhighreturns.Bothplay vitalrolesinbusinessdevelopmentandtheprivateinvestmentecosystem.
WHAT IS PE?
Privateequity(PE)isaformofinvestmentinprivateorpubliccompanieswiththegoalof improving performance and selling the business for profit. PE differentiates itself from traditionalinvestingasitinvolvesactivelymanagingthebusinessforextendedperiods.
PE firms raise capitals from institutional investors such as pension funds, and institutional lenders. The capital is then pooled into a fund and used to acquire companies generally in mature, cash flow positive businesses or growth stage companiesrequiringstrategictransformations.
There are several methods of PE investing, including buyouts, where the PE firm acquires a majority stake in established firms, growth equity, minority investments in expanding companies, distressed investments and venture capital which will be explained in the next chapter. Once PE firms acquire a company, they typically work to improve operations, streamline costs, boost revenue and enhance the valuation of the company.Afterreachingtheirgrowthorrestructuringmilestones,thePEfirmoftenexits via a sale to another firm or an IPO. PE plays a key role in the global economy by injectingcapital,improvingefficiencyanddrivinglongtermvaluecreations.
TRANSACTION #1 (AU)
Blackstone acquires Airtrunk
On 4 September 2024, private equity firm Blackstone, in partnership with CPP Investments, announced their acquisition of AirTrunk, the largest independent data centre platform in the Asia-Pacific region. The $24 billion AUD transaction received regulatory approval from the Australian Foreign Investment Review Board on 23 December 2024, markingthelargestdatacentredealinhistory.
CPP Investments took a 12% minority stake in AirTrunk, with Blackstone assuming the remaining 76% of the 88% interest held since 2020 by Macquarie Asset Management and PSP Investments.
Established in 2015 and headquartered in Sydney, AirTrunk operates 11 hyperscale data centres across Australia, Japan, Singapore, Malaysia, and Hong Kong, with more than 800 megawatts of operational capacity and secured land for an additional1gigawattofdevelopment.
Blackstone pursued the acquisition as part of its broader strategy to invest in sectors supported by structural growth, bringingtheirdatacentreportfoliotoatotalvaluationof$106 billion AUD. Key drivers of the deal included the accelerating global demand for data storage and processing capacity sparkedbytrendssuchasartificialintelligence,streamingand social media, with Blackstone having acquired US and European data centre provider QTS in a $15 billion AUD takeprivatein2021.
The acquisition has now in part made AirTrunk the largest data centre provider in the world, with its growth set to continue as reports in April suggested that mature data centres in Sydney and Melbourne could be divested for up to $4billionAUDtogeneratecapitaltore-investinthefirm.
TRANSACTION #2 (US)
Apollo acquires IGT / Everi
On 26 July 2024, Apollo Global Management unveiled a landmark double acquisition in the gaming sector, announcing its agreement to acquire both the Global Gaming and PlayDigital divisions of International Game Technology (IGT), as well as Everi Holdings Inc., a US-based slot machine manufacturer and fintech provider for casinos. The combined enterprise value of the transaction is estimated at USD $6.3 billion (AUD ~$9.4 billion), comprising $4.05 billion in cash for the IGT business and $2.2 billion for Everi, with Everi shareholders receiving $14.25 per share - representing a 56% premium to its closing price. The transactions are expected to close in late 2025, subject to customaryregulatoryapprovals.
IGT’sGlobalGamingandPlayDigitalsegmentsrepresentitslegacyslotmachine,systems, and digital gaming operations, with the remaining business - its highly profitable global lottery arm - set to be retained and rebranded. Everi, on the other hand, operates in similar verticals, offering land-based and digital casino content as well as financial technology products such as cash access, compliance, and loyalty solutions for gaming venues across North America. Apollo will merge the two into a single private company, withItaly’sDeAgostini(IGT’sparent)retainingaminoritystakeinthenewentity.
The deal reflects Apollo’s broader thesis around consolidation opportunities in the fragmented gaming technology landscape, particularly as land-based gaming recovers post-COVID and digital gaming accelerates. The combination of IGT’s global content and platforms with Everi’s fintech and domestic footprint offers complementary strengths and revenue synergies across both brick-and-mortar and digital channels. The move also enables Apollo to scale operations and modernise product lines under private
TRANSACTION #3 (UK) KKR acquires Spectris
On July 2 2025, KKR announced its cash acquisition of Spectris Plc (Spectris), outbidding private equity rivals Advent International and GIC. Spectris is a London based supplier of high-tech precision instruments, test equipment and software for industrial applications. A low-profile firm in the London Stock Exchanges FTSE 250, Spectris faced some issues in 2024 with a falling share price due to weaker trading, negative effects of Trump’s tariffs on its international business in Asia and its increase in debt from funding a few acquisitions in the US. As a result Spectris desired to pursue private ownership so that management could focus on maximising its operations and high-quality focus “without the ongoing shorter-term requirements of being a publicly listed company.” This originally resulted in Spectris agreeing to be taken private by Advent International in June 2025 at a £3.73 billion (US$5.06 billion) valuation offer; however, by July its plans changed. With KKR proposing to pay £40.00 (US$54.24) and a consideration of including a 20p (US$0.27) dividend per share, the bid valued Spectris equity at £4.1bn (US$5.56bn) and an enterprise value including debt of £4.7bn (US$6.37bn). As such, Spectris dropped their agreement with Advent International as it decided to pursue this deal and allow KKR to help Spectris “significantly accelerate inorganic growth” by doing deals that would not have been possible with its weak share price. In response to this decision, Spectris’ share price rallied by 4.4% over the proceeding 3 days and the overall stock is up 42% year over year as the acquisition is expected to be fully complete by Q1 2026. This transaction is part of a growing trend amongst UK listed companies recently in going private with over 30 bids of £100m (US135.59m) listed company in the last
WHAT IS VC?
Venture capital (VC) is a form of private equity financing provided by investors to early stage, high potential startups and small businesses. These investments are typically equity stakes in small businesses which lack maturity to access traditional financing methodssuchasinstitutionallendersorpublicofferings.
VC firms raise funds from a few partners, generally pension funds, endowments and highnetworthindividuals,deployingthecapitalacrossaportfolioofstartups.Theirgoal is to identify and support startups with large upsides, ultimately generating significant returnsthroguhanexiteventsuchasanIPOoracquisition.
The VC process involves multiple rounds of funding (Seed, Series A, B, etc) with capital increasing as the company grows. Besides funding venture capitalists may also provide strategic guidance, operational support and access to networks to help scale their investment. Ultimately, VC’s take on high-risk investments into startups, backing the growthofcompaniesthatcandisruptorcreatenewindustries.
Blackbird funds Airwallex (AUS)
Blackbird Ventures, Australia’s largest venture capital firm has unveiled their late-stage investment in Airwallex, a Melbourne-founded global fintech platform. The company has committed $60 million to Airwallex, valued at approximately USD $8.3 billion serving over 150,000 businesses globally. This allocation of funds from Blackbird’s $688 million follow-on-fund demonstrates the firm’s strategic pivot towards AirwallexasthefirmmovestowardsanIPOofferingwithinthenexttwo yearscentredaroundthegrowthoffintechplatforms.
Founded in 2015 by Jack Zhang, Airwallex provides a proprietary infrastructure for cross-border payments, foreign currency accounts, and financial operations, serving over 150,000 businesses worldwide. The company has carved out market share by undercutting traditional banks and global remittance players, delivering faster and lower-cost transactions that integrate with mainstream accounting systems. The firm is heavily backed by large companies such as Tencent, Atlassian and Salesforce Ventures. Blackbird’s decision to participate, generally avoiding fintech prior, reveals a promising foothold in Airwallex and its subsequently significant growth opportunities as a leader in global B2B payments.
Overall, this investment represents Blackbird’s recognition of a rapidly evolving and emerging fintech landscape dominated by leaders Airwallex as a sole differentiator from their cost mitigation processes and efficient transaction systems. Furthermore, Airwallex can benefit from a bolstering of capital reserves ahead of its promising IPO prospectsduetostrongdomesticbacking.
Andreesen Horowitz funds Flock Safety (US)
Venture capital firm Andreessen Horowitz led Flock Safety’s $418 million AUD Series E funding round on 13 March 2025, bringing the company’s valuation to approximately $11.4 billion AUD. This is not the first time Andreessen Horowitz has invested in the company,followingitsleadershipoftheSeriesDroundin2021.
Flock Safety is an American security technology company founded in 2017 which designs, builds, and operates advanced public safety systems that combine hardware and software to aid crime prevention and investigation. The Series E funding round will help develop its AI-driven public safety solutions, including license plate recognition cameras,gunshotdetectionsystems,andautonomousdrones.
A Series E round is a late-stage financing round used by mature startups, with Flock Safety recently surpassing $450 million AUD in annual recurring revenue, reflecting year-on-year growth of around 70%. It is also expanding its domestic manufacturing capabilities,includingthedevelopmentofa9,000+squaremetrefacilityinGeorgia.
Andreessen Horowitz’s continued investment signals strong confidence in the company’s long-term strategy and its ability to scale as a leading provider of public safety technology, particularly given its use of AI. By leading the Series E round, the firm likely holds a substantial minority stake and maintains a significant role in strategic decision-making.
Sequoia/Greylock funds Aspora (UK)
Sequoia Capital and Greylock Partners collaborated on two rounds of funding for Aspora, from December 2024 to May 2025, investing a total of a reported $85 million into the fintech startup. Initially, Sequoia led a $35 million Series A investment, acquiring a large non-disclosed ownership stake in Aspora. Following this, Aspora proved their strong upside potential, resulting in another $50 million raised in Aspora’s SeriesBfunding,thistimeco-ledbybothfirms.
Aspora (Formerly Vance) is a finch startup reimagining banking for immigrant communities, initially focusing on non residential Indian migrants in London, with their operations expanding across the UK, EU and now the UAE. The start-up builds a full-stack, cross border “neobank,” for people who live and earn in one country but still have close financial ties toanother.
From a top down perspective, the partners considered macrotrends such as immigration to western nations from India, as well as the types of migrants, generally partners or individuals with strong ties to India. Alternatively from a management perspective, Sequoia and Greylock could also set measurable growth goals and strategies, i.e expanding into the US, Canada, etc. Additionally, Aspora’s remittance volumes quintupled reaching over $2bn in half a year, disrupting online banking and money transfers significantly with their zero fee model saving users over $15 million. Ultimately, Sequoia and Greylock’s investment in Aspora demonstratesanotherbet-on-momentumstrategy,reflecting theirconfidence.