Australia’s sharemarket is on track for its weakest annual return in three years, with the S&P/ASX 200 Index set to finish 2025 up around 5 per cent. This is a decrease compared to 8.4 per cent in 2024 and 11.4 per cent in 2023. While the index briefly rallied above 9000 points, this masks an underwhelming performance relative to other major markets like the US, UK, and Hong Kong. Commonwealth Bank (CBA), the ASX 200’s largest stock, is an Australian bank providing various financial services. CSL is a global biotechnology company that develops and delivers innovative medicines. These companies saw their stocks losing shine with investors, impacting the overall market performance.
Investors suggest that returns could have been significantly worse without the rally in gold and critical minerals, as the market contemplates a potential interest rate rise as early as February. After just three rate cuts in 2025, this would mark the shortest and shallowest easing cycle for the Reserve Bank of Australia (RBA) since the global financial crisis. According to IG market analyst Tony Sycamore, expectations for rate cuts shifted to fears of rate hikes, shackling an index highly sensitive to interest rates. The ASX resource sector, however, jumped more than 25 per cent year-to-date, driven by an almost 70 per cent surge in gold prices.
Outside the mining sector, performance was more subdued, with healthcare and technology stocks, including CSL and WiseTech Global, dragging on returns. Infinity Asset Management portfolio manager Dominic Mlcek noted a clear reversal of market dynamics, with smaller companies outperforming large caps. This shift was a defining feature of 2025, with investors seeking cheaper valuations and stronger earnings growth in smaller companies.
While mining giants BHP and Rio Tinto delivered double-digit gains, smaller and mid-cap companies with greater sensitivity to commodity prices saw the strongest performance. Despite concerns, Ausbil’s chief investment officer, Paul Xiradis, remains optimistic about earnings growth potential in 2026, believing the market has been overly bearish on the economy and trade issues.
