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by David Scobie
2025 was a momentous year for geopolitics, giving global financial markets plenty to process. The United States shifted to a policy path not seen since the mid-20th century, with a renewed emphasis on tariffs as a tool to reclaim power and influence over trade partners both large and small.
Many countries reacted with surprise at first, but by mid-year a pattern of US hesitation had become apparent. As alternative investment destinations gained popularity, a caffeine-inspired “MOCHA” theme - Making Other Countries Hip Again - emerged to capture the growing appeal of non-US markets.
Against that backdrop, global growth was only mildly affected. Most central banks spent the year grappling with inflation that was lower, but still not low enough, while rapid developments in artificial intelligence gave further momentum to a new technological era. All of that kept investors on their toes.
The result is neatly illustrated in Mercer’s annual Periodic Table of investment returns, which colour-codes 16 major asset classes and ranks their yearly performance over the past decade. The big lesson is a familiar one: leadership changes quickly, and markets rarely deliver exactly what investors expect.
“Those who have knowledge don’t predict. Those who do predict don’t have knowledge.”
At the start of 2025, investors were focused on four key equity risks: market concentration, high valuations, macro uncertainty and uneven emerging-market performance. Even so, global uncertainty - driven largely by frequent shifts in US trade and foreign policy - did not prevent strong returns.
The MSCI World Index finished the year up 18%. Emerging markets did even better, returning 30% and sitting comfortably at the top of the Periodic Table.
Concerns about valuations and concentration did not disappear. Markets ended the year still trading at historically elevated levels, although below the heights of the dot-com era. The forward price-to-earnings ratio for the US market rose from 23x to 24x, reinforcing those concerns. At the same time, valuations were broadly supported by solid earnings growth, led by the Magnificent 7, which increasingly took on hero status as the year progressed and fuelled higher expectations for 2026 and beyond.
The MSCI World Index also became more concentrated. A decade ago, the top 10 securities represented about 10% of the index; by the end of 2025 that figure had risen to more than 28%. Still, the world’s leading companies remain, for the most part, high-quality businesses with strong profitability, limited debt, recurring revenues and meaningful barriers to entry. Although the US accounts for more than 70% of the MSCI World Index by market capitalisation, well over half of these companies’ revenues come from outside the US.
While the US market delivered a strong result, several European markets outperformed the S&P 500 Index’s 18% return in 2025. Spain, Poland and Greece each returned more than 70%. South Africa and Peru also impressed. The standout region, however, was Asia, with South Korea’s share market nearly doubling over the year.
Closer to home, returns were far more subdued. The S&P/NZX 50 Index managed only a 4% gain in 2025, making it one of the world’s weaker equity markets. Australia returned 10% in AUD terms, helped by strong showings from the financials and materials sectors, allowing it to win the investment Bledisloe Cup for the fifth year running.
For New Zealand investors, the decision to hedge or remain unhedged made little difference in 2025. Despite mixed moves against major currencies, the New Zealand dollar finished the year close to where it started against the MSCI World basket of currencies.
Government bonds contended with fiscal concerns and steeper yield curves in several major countries. But inflation fears linked to tariffs failed to materialise, and labour-market worries prompted the US Federal Reserve to cut rates by 75 basis points in the second half of the year, supporting bond prices.
Default rates in US and European high-yield bonds edged up slightly, though corporate balance sheets remained broadly strong. That helped credit spreads tighten across 2025 and boosted returns for investors. Emerging-market debt, up 8%, was the best-performing defensive segment, supported by sound fundamentals, investor demand and currency gains - particularly in Latin America. New Zealand government bonds returned 5%, narrowly ahead of NZD-hedged global aggregate bonds.
Commodities were a standout in 2025, especially precious metals. Gold remained in the headlines as central banks continued to diversify reserves and exchange-traded funds attracted solid inflows. Silver’s return of close to 150% was particularly notable. Other commodities were less impressive, especially oil, leaving the overall commodities basket up 15% for the year.
Global private equity, up 6%, saw dealmaking rebound, especially in the second half of the year. Returning investor confidence, improved financing conditions and widespread AI adoption all helped, even as fundraising stayed muted and many investors waited for stronger evidence of cash distributions.
Global listed infrastructure and property landed in the middle of the Periodic Table, returning 11% and 7% respectively. New Zealand direct property had a subdued year at 8%, while hedge funds produced a respectable 5%. With the Official Cash Rate nearly halved to 2.25%, NZ cash delivered a return below 4% - only slightly above New Zealand’s 3% inflation rate.
The Periodic Table is a useful reminder that markets are inherently volatile and leadership can change quickly. For investors, the real lesson is not to try to predict every twist in the cycle, but to understand the risks they can tolerate, set portfolios accordingly and stay the course.
As Lao Tzu would put it: “If you do not change direction, you may end up where you are heading.”
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David Scobie is Head of Consulting at Mercer Investments. He advises institutional clients on their investment policies, portfolio structures and fund manager selection.
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