Share markets continue to rise, however significant headwinds cloud the outlook for the year
The major themes that are dominating financial markets are:
-
- The Middle East war and the associated price increases for crude oil, natural gas and fertiliser are a threat to global economic activity.
- National Self-Sufficiency: Countries are prioritising national security by focusing on local supply chains for energy, minerals, and technology.
- The "Old-Economy" Comeback: Spending is underway as nations race to build data centres and secure independent energy sources, bringing traditional industrial and energy firms back into focus.
- The AI execution phase. Investors are now rewarding companies that successfully use AI to cut costs or grow sales, rather than just the "chip makers".
- Structural Inflation: Inflationary pressures are returning, leading to many central banks increasing interest rates and bond yields rising.
Returns of major asset classes to 30 April 2026
|
Asset Class % |
CYTD |
3 months |
6 months |
1 year |
Ann.3 year |
Ann. 5 Year |
Ann.10 year |
|---|---|---|---|---|---|---|---|
|
Global Shares in USD |
6.8 |
3.7 |
7.9 |
31.7 |
20.5 |
11.3 |
12.9 |
|
Global Shares in AU |
0.1 |
1.0 |
-1.7 |
17.2 |
17.2 |
12.9 |
13.6 |
|
US Shares in AU |
-2.0 |
1.5 |
-3.5 |
16.6 |
18.3 |
14.8 |
16.0 |
|
Emerging Markets in AU |
6.3 |
2.6 |
5.0 |
31.3 |
17.9 |
8.1 |
10.3 |
|
Australian Shares |
0.5 |
1.2 |
-0.9 |
10.1 |
9.7 |
8.4 |
9.3 |
|
Australian Small Companies |
-7.9 |
-10.4 |
-8.0 |
15.3 |
8.7 |
3.7 |
7.3 |
|
Australian Listed Property |
-9.5 |
-7.0 |
-11.3 |
-0.2 |
9.2 |
6.2 |
5.9 |
|
Australian Bonds |
-0.3 |
-0.5 |
-1.8 |
-0.1 |
2.0 |
0.1 |
1.8 |
|
Global Bonds (Hedged AUD) |
0.1 |
-0.1 |
0.0 |
2.4 |
3.1 |
-0.1 |
1.6 |
Share markets have produced unusually positive returns over the past three years, and global bonds have been positive as well. The strengthening of the Australian Dollar significantly reduced returns in AUD.
Despite an overwhelming news cycle in 2026, global shares have performed well. US share prices reached new historic highs, supported by corporate profit margins hitting 15-year peaks. Returns since February have been led by a resurgence in technology companies following a brief period of skepticism regarding AI sustainability. Emerging markets remained strong, driven by Asian technology (Korea and Taiwan) and Latin American energy and commodities.
In Australia, the headline results mask a sharp divide between sectors. While the overall market was subdued, the Energy and Materials sectors surged 34% and 17%, respectively, year-to-date (with returns of 58% and 46% over 1 year). Conversely, Australian Small Companies and Listed Property were hit by rising interest rates. Small companies are currently experiencing a correction following a massive 25% return in 2025. Healthcare continues to slump. In the fixed-income space, Australian bond returns were lower than cash due to rising yields, though Investment Grade Credit continued to offer attractive yields.
Outlook for economies and markets
The outlook for the remainder of 2026 remains for strong global earnings, but several headwinds persist. These include high sovereign debt levels, energy supply disruptions, and high valuations in the US and Australian markets. The US and Emerging markets are the most positive. Europe/UK is slowing, and both Europe/UK and Asia are highly vulnerable should the energy crisis continue.
Domestically, following resilient growth in 2025, the Middle East war has made the Australian economy more fragile and slower. Business investment is mostly technology-related, and business and consumer confidence has fallen sharply. The spike in inflation saw interest rates rise to 4.35% in May 2026, exacerbating cost-of-living pressures.
We remain positive on growth assets and quality credit, but emphasise active management to identify relative value in specific sectors and sub-asset classes.
Conclusion: Our preferred approach
-
- Continue to be diversified by asset classes.
- Remain flexible and incorporate active management.
- Review currency hedging in the portfolio.
- Bonds and high-quality credit for income and stability.
- Seek inflation protection with exposure to listed global property and infrastructure.
- Regular rebalancing to maintain target allocations.
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser