Another area we see gaining real momentum is robotics. Automation is becoming essential for lifting productivity, reducing costs and addressing labour shortages across a wide range of industries, and we see robotics having a potential breakout year.
by Generate KiwiSaver
By Greg Smith
Before looking forward, it’s worth briefly reflecting on how we arrived here. 2025 was certainly one of the more extraordinary years investors have experienced in a long time. It may also however provide some important learnings for investors as we move forward through 2026.
As with the initial days of 2026, markets faced no shortage of challenges last year. Trade tensions, tariffs and ongoing geopolitical noise were constant themes, yet despite all of this, it was a very strong year for investors. Fresh record highs became a regular feature across many global indices.
In the United States, the S&P 500 finished the year up around 16%, while the Nasdaq Composite gained 20%. Many markets in Europe (the IBEX in Spain soared 49%) and Asia (South Korea’s KOSPI soared 76%). Technology once again led the way, driven by the ongoing artificial intelligence (AI) thematic - something that played out well given our strong exposure to the sector across our funds.
It wasn’t just technology that stood out.
Precious metals also had an exceptional year, with both gold and silver performing very strongly. That flowed through to two gold mining companies held in Generate’s funds, both of which more than doubled over the year. As a “side bar,” gold and silver have pushed further into record territory at the start of 2026 (now over US$5,000) amid geopolitical and political uncertainty. Gold prices are now up around 80% over the past 12 months, while silver prices have trebled.
Closer to home, New Zealand and Australian markets didn’t match the strength of the US, but still delivered positive returns and pushed to new record highs. There were also some standout individual stock performances. A2 Milk surged around 70% and Freightways rose more than 35%. Overall, 2025 was a fascinating year for markets, and once again highlighted the benefits of an active approach to investing.
Looking ahead, 2026 is already shaping up to be another interesting year, and it has certainly started that way. US President Donald Trump has wasted no time making headlines, from orchestrating the capture of Venezuela’s President to floating the idea of the United States acquiring Greenland.
The US Justice Department has also recently opened a criminal investigation into Federal Reserve chairman Jerome Powell. This centres on representations made to lawmakers last year over the US$2.5 billion renovation of the Fed’s Washington headquarters and US$700 million in cost overruns. Many however see this as not really about concrete or steel but the strongest attempt yet to apply political pressure on the Fed to cut rates faster than it currently intends.
While the headlines can be noisy, stepping back reveals several important themes emerging beneath the surface.
At a broad level, we see global equity markets continuing to push higher over the course of the year. Our base case is that a US recession is avoided, while central banks remain broadly supportive. Even with inflation still sitting above target, we expect a newly appointed Trump-backed Federal Reserve chair to help direct two rate cuts during 2026.
For some investors, heightened geopolitical tensions can feel unsettling, but periods of volatility often create opportunities for active managers to take advantage of temporary market dislocations and shifting sector dynamics in ways that passive approaches simply cannot.
Despite these risks, we expect investor confidence to remain reasonably robust. 2026 could also be a year when merger and acquisition activity picks up, particularly within the technology sector.
While we don’t believe the AI narrative is about to burst, we do think the distinction between winners and losers will become much clearer. While a rising tide has lifted many boats in the sea of AI names, execution will matter far much more from here – and those who don’t do this well could be in for choppier waters.
This is while valuations in parts of the market (particularly US mega-cap technology) are no longer cheap. That reinforces our focus on selectivity and active positioning rather than broad, indiscriminate exposure.
Nonetheless as a narrative, AI is set to remain dominant, as are themes around it. One of these is power, which AI requires enormous amounts of. We see power generation and energy infrastructure as major beneficiaries as hyper-scalers such as Microsoft, Amazon and Google continue to Global expand data-centre capacity at pace. Demand for reliable, scalable energy solutions is only just beginning, and we believe we are still in the very early stages of products and services being built on this technology.
Global Power Demand Forecasts
Another area we see gaining real momentum is robotics. Automation is becoming essential for lifting productivity, reducing costs and addressing labour shortages across a wide range of industries, and we see robotics having a potential breakout year.
Forecast Global Robot Sales
Outside technology (although there is a relationship of sorts), waste management is another theme we find increasingly attractive. Global waste volumes are expected to increase by around 70% by 2050 if current trends continue, driving long-term demand for more efficient recovery, recycling and waste-to-energy solutions.
Global Projected Waste Generation by Region
Source: World Bank
Closer to home, we see the Australian market pushing to new record highs. The Reserve Bank of Australia is expected to begin its rate-cutting cycle against the backdrop of a relatively resilient economy, supported by a recovery in China that could surprise on the upside.
In New Zealand, we also expect the market to make new highs. Investor appetite is likely to grow for electricity companies, property and cyclicals that appear to have bottomed. The dividend appeal of the local market should also come back into focus, particularly with interest rates expected to remain relatively low.
There is a new Governor at the Reserve Bank of New Zealand, and we expect Ana Breman to make her mark alongside a refreshed leadership team.
Looking further ahead, we expect the New Zealand economy to show a much stronger second half, as early green shoots become more visible. The $3.2 billion Fonterra payout and its flow-on effects should also provide support.
And as we start 2026, the green shoots we have been flagging in the kiwi economy appear to be pushing through the soil. The BNZ–Business NZ Performance of Manufacturing Index has come in at the strongest in four years. New Zealand is also outperforming globally - the PMI exceeded the global average of 50.4 and Australia’s 51.6.
Source: BNZ/Business NZ
After nearly two years in the red, the services sector is also showing genuine signs of life. The Performance of Services Index rose to 51.5 in December, moving back above the breakeven 50 mark for the first time in 21 months. It is the strongest reading since June 2023.
Source: BNZ/Business NZ
When combined with the strong PMI result, the combined Performance of Manufacturing and Services Index is now signalling firmly positive GDP growth into the end of 2025. Importantly, the recovery is broadening. Manufacturing and construction strength is now being joined by the much larger services sector.
Rate cuts over the past year are now feeding through more meaningfully. Other surveys support this improvement. The Quarterly Survey of Business Opinion showed a strong lift in confidence in the December quarter, with business confidence at an 11-year high. A net 39% of firms expect an improvement in general economic conditions, up from a net 17% previously.
Hiring and investment intentions are also improving. The caveat to all this is that it is easier for businesses to post higher confidence readings after such a tough 2025. But it is a start.
December’s inflation data was meanwhile a timely reminder that the recovery is occurring alongside firmer-than-expected price pressures.
Consumer prices rose 0.6% in the December quarter, above expectations, lifting annual inflation to 3.1% from 3.0%. The result was also higher than the 0.2% quarterly rise assumed by the RBNZ in its November forecasts.
That strength matters for policymakers. Earlier easing in core inflation has now stalled. Trimmed mean inflation has lifted to 2.7%, and most measures now sit in the upper part of the RBNZ’s target band.
Domestic inflation (non-tradables) is running at 3.5%, above historic averages and above the RBNZ’s expectations. Tradables/offshore driven inflation has also hit 2.6%, the highest level since 2023.
After a long and difficult period, the recovery is becoming clearer and more broad-based. Inflation, however, is proving more persistent than hoped. That will help the RBNZ in its endeavours to move the OCR back to more normal/less stimulatory levels.
The green shoots we flagged late last year however are now clearly visible. And for the first time in a while, the New Zealand economy is finally starting to move forward, just not without a few constraints still in place.
And of course, it’s an election year. We expect a tightly contested race, with capital gains tax and potential KiwiSaver reforms shaping up as key areas of debate.
For KiwiSaver members and long-term investors, the key takeaway for this year again is not to be distracted by short-term noise. Markets will continue to react to headlines around politics, inflation and geopolitics, but retirement savings are built over decades, not months. With interest rates expected to remain relatively low, the case for maintaining exposure to growth assets such as shares remains strong, particularly for those with longer time horizons.
At the same time, higher market valuations and greater dispersion between winners and losers reinforce the importance of diversification and active management. Staying invested, regularly reviewing fund settings, and ensuring portfolios are positioned for long-term themes (rather than just chasing last year’s winners) is likely to be far more important than trying to time markets in the year ahead.
Generate is a New Zealand-owned KiwiSaver and Managed Fund provider managing over $8 billion on behalf of more than 180,000 New Zealanders. With a team of specialist advisers and a track record of strong long-term performance, Generate aims to help Kiwis make informed decisions and build a stronger financial future.
This article is intended for general information only and should not be considered financial advice. All investments carry risk, and past performance is not indicative of future results. To view Generate’s Financial Advice Provider Disclosure Statement or Product Disclosure Statement, visit www.generatewealth.co.nz/advertising-disclosures. The issuer is Generate Investment Management Ltd.
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