Insights
Market review for August 2025

This month:

Tech stocks wobble as AI enthusiasts get a reality check

Caterpillar suffers a big divestment amid an Israel-linked backlash

Interests rate fall in NZ and the UK

The US hikes India’s tariffs in protest at Putin’s war with Ukraine

Is the hype surrounding AI running out of steam? That was a question on many investors’ minds in August as soaring US-listed tech stocks were briefly knocked off course.

In parallel, we saw the continuation of overlapping global trends that have shaped markets, economies, and investor sentiment for much of the year so far. Tariff tension, geopolitical hostility, and interest rate speculation were prominent topics of conversation for investment managers.

As for the Pathfinder KiwiSaver Plan and Managed Funds short, medium and long-term performance data can be viewed here at any time.

Before we dive into the market and geopolitical events of the month, we wanted to shine a light on an eye-catching development from Norway.

In August, the country’s sovereign wealth fund, which is also the largest of its kind with approximately (USD) $2 trillion in funds under management [1], announced that it was divesting from Caterpillar.

The Norwegian fund took issue with the allegation that Israel uses Caterpillar’s machinery for inhumane purposes, such as bulldozing residential property in Palestinian communities.

To clarify, Caterpillar isn’t an Israeli company. The divestment resulted from the fund's independent Council on Ethics finding that Caterpillar's products were being used in a way that violated international humanitarian law in Gaza and the West Bank.

As an ethical investor, Pathfinder considers the role investors can play when it comes to conflict. Divestment is certainly one strategy, one we used ourselves regarding Caterpillar, but it's not the only strategy. For more information about your options as an investor, you can visit our Insights webpage, where we recently published a blog on the topic. There, you’ll also find access to an RNZ podcast, entitled “Is your KiwiSaver helping to fund wars?”

Back at home, welcome news for Kiwis, especially borrowers and businesses, came via the Reserve Bank’s decision to lower the OCR to 3%.

The NZ economy continues to underwhelm in 2025, amid persistent cost-of-living pressures and a weak jobs market. Data released in August showed the unemployment rate rising to 5.2% over the months of April to June [2].

Given the economic challenges, an August OCR trim was widely expected. While nothing is guaranteed, the market consensus points to two more OCR cuts before the end of the year, as the central bank prioritises trying to catalyse growth.

At a global level, higher-for-longer borrowing rates, coupled with historic levels of government borrowing, are creating expensive mountains of national debt.

In August, the UK and France came under the spotlight as investor nerves grew about the strain of their borrowing. High debt, high levels of taxation, and insufficient welfare spending reform (seen as necessary to counteract the borrowing), make for an unattractive trilogy for investors.

Against that tense backdrop, the UK’s Bank of England cut its base rate in August to 4%. This was despite inflation sitting at 3.8%, above its 2% target. As in NZ, the need-for-growth has become a priority for UK policymakers.

While there was no rate cut in the United States, investors reacted unfavourably to Trump’s more frequent interference with the US Federal Reserve (which sets rates).

His efforts to oust Democrat-appointee Lisa Cook, from the board of the US Federal Reserve (Fed), run parallel with his near-constant criticism of Fed Chair, Jerome Powell. The White House’s blatant strong-arming of the independent Fed arguably weakens the appeal of US assets for investors. Ideally, a key institution that influences the economy (and its associated assets) wouldn’t be vulnerable to political manipulation.

On the topic of controlling behaviour, August saw both sides of the US-led trade war playing out, with escalation and de-escalation making headlines.

First, Canada backtracked from a full-blown trade spat and opted to remove its own retaliatory tariffs on US goods and services.

In contrast, the US hit India – a major buyer of cheap Russian oil, the proceeds of which help to fund the Ukraine invasion – with a 25% levy on Indian goods and services, on top of a 25% reciprocal tariff.

The fact that US tariffs are being used against a major Asian economy, to influence the outcome of a war on the Eastern periphery of Europe, in retaliation to Putin’s refusal to negotiate seriously, represents a big deviation from original White House rhetoric. The rationale for tariffs had previously been pinned to the need to counteract unfair trade practices against Americans.

Meanwhile for stock markets, the biggest story of the month involved a moderate sell-off of tech stocks after doubts crept in about the true impact, and therefore value of, AI.

For context, US-listed tech stocks, including household names like Microsoft and Nvidia, have flourished in 2025 off-the-back of investor enthusiasm for AI. However, two events in quick succession last month temporarily knocked them off course.

First came a report by the Massachusetts Institute of Technology (M.I.T) which offered a damning assessment of the ability of ‘AI pilots’ to deliver the work expected of them.

Then, one of the most influential leaders in the AI space, Sam Altman of OpenAI, went on record with the view that investors may struggle to be rewarded for their AI-focussed investments.

Despite the flurry of subsequent media coverage, the market sell-off that followed was relatively short-lived and shallow. Nvidia’s strong quarterly earnings report later in the month went some way to calming nerves.

However, a general re-set of investor expectations linked to AI is to be expected, as the world continues to better understand emerging technologies that have suddenly appeared at pace.

As an aside, we’re monitoring with interest the current legal challenge of both Altman and OpenAI linked to a teenager’s suicide. The victim’s family alleges that ChatGPT was fuelling his suicidal thoughts due to inadequate safety guardrails that might have stopped such an interaction.

While we don't want to comment on the specifics of an open case, or ignore the wide range of beneficial AI applications, it is nonetheless one example of the ethical complexities related to fast-moving technological developments. It also highlights the ongoing tension between economic opportunities and ethical conduct.

In many ways, August offered more-of-the-same for investors in 2025.

Without wanting to downplay the dramatic news headlines that we saw across the month, the reality is that they didn’t influence our team’s long-term focus on preserving and growing the investments of our members.

Generally speaking, it’s reasonable to expect that investor appetite for AI will take a knock at some stage. A degree of over-exuberance has arguably crept into markets, and this implies that, at some stage, investor expectations will be due a re-set. The intra-month volatility in August, perhaps, offered an early glimpse of what this could look like in future.

That said, the fact remains that US-listed tech firms are still a key driver of stock markets and corporate earning growth in 2025. Cutting the cord in the face of August’s market wobble would be rash. As always, our focus stays on maintaining diversified holdings in funds - and investing in-line with our ethical policy- on behalf of our members.

Sources:

[1] https://www.nbim.no/

[2] https://www.stats.govt.nz/indicators/unemployment-rate/

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Pathfinder Asset Management Limited is the issuer of the Pathfinder KiwiSaver Plan and Pathfinder Investment Funds.  Product Disclosure Statements for these offers are available at pathfinder.kiwi. Learn more about how we invest ethically by reading our Ethical Investment Policy & Exceptions Register on our website.