Investment Market Update – June 2026

These have included trade tensions, conflict in the Middle East, rising inflation, and concerns around elevated valuations.

Yet markets have repeatedly rebounded from short-term corrections, giving the impression that they are largely unfazed by external shocks.

Why have offshore markets remained so strong?

Firstly, policy support remains a critical driver

Investors have increasingly taken comfort in the view that policymakers, particularly in the United States, will act to stabilise markets during periods of stress.

This perception has helped dampen downside volatility and reinforce confidence during uncertain periods.

Secondly, economic conditions have held up better than expected

While softer indicators such as consumer confidence have weakened, actual economic activity remains relatively stable.

Global growth is tracking at around 3%, broadly in line with long-term averages, and recession fears have yet to materialise.

Thirdly, corporate earnings have been strong

In particular, the US market has benefited from significant earnings growth, with recent results showing year-on-year growth of approximately 29%.

Much of this has been driven by the technology sector, where investment in artificial intelligence continues to boost profitability.

Fourthly, global liquidity remains abundant

There is significant capital seeking investment opportunities, which has supported demand for equities and facilitated the absorption of new issuance and IPO activity.

Finally, markets are factoring in ongoing government intervention

Since the Global Financial Crisis and the pandemic, investors have grown accustomed to proactive fiscal and monetary responses during periods of stress, further reinforcing confidence in risk assets.

Australia has underperformed

The Australian share market has underperformed many offshore markets over the 2026 financial year primarily due to differences in sector composition and earnings drivers.

Compared to global indices – particularly the US – the Australian market has a relatively low exposure to high-growth technology companies that have benefited significantly from the surge in artificial intelligence-related investment.

In contrast, the ASX remains more heavily weighted towards financials, resources, and defensive sectors, which have delivered more modest earnings growth.

While global markets have seen strong corporate profit expansion – especially in US technology stocks – Australian earnings growth has been comparatively subdued.

Additionally, Australian equities have faced headwinds from weaker commodity price momentum and sensitivity to China’s slower economic recovery, which weighs on the resources sector.

At the same time, persistently high interest rates in Australia have constrained domestic growth and consumer activity, limiting upside for cyclical sectors.

Combined with already stretched valuations and a lower risk premium relative to bonds, these factors have contributed to Australia lagging stronger-performing offshore share markets.
 
Key risks to watch

Despite these ongoing strong offshore returns, there are several important risks that investors should not overlook.

Geopolitical uncertainty remains elevated

The recent conflict involving Iran has highlighted the potential for renewed disruptions, particularly to global oil supply, which could quickly impact markets if tensions escalate again.

Policy uncertainty may increase

Political dynamics, particularly in the US, could lead to less predictable decision-making, especially following upcoming elections, with potential implications for trade and foreign policy.

The AI-driven growth cycle may be overheating

While artificial intelligence has been a major contributor to earnings growth, there are signs that investment and valuations in this area could be approaching bubble-like conditions.

Inflation remains a challenge

Structural factors such as deglobalisation, increased government spending, and energy transition are contributing to persistent inflationary pressures.

As a result, central banks are increasingly inclined to maintain or even raise interest rates, which could weigh on asset prices. This situation is current in Australia.

Market volatility is currently low

While low volatility can support short-term returns, history shows that prolonged periods of subdued volatility can precede more pronounced market movements.

What this means for investors

While the current market environment remains supportive and further gains are possible in the near term, it is important not to become overly complacent.

Elevated valuations, combined with a build-up of underlying risks, suggest that markets may be more vulnerable to setbacks than recent performance implies.

The key takeaway for investors is to remain disciplined. Rather than increasing exposure to equities in response to strong recent returns, a well-diversified portfolio aligned to long-term objectives and risk tolerance remains the most appropriate strategy.

Maintaining this disciplined approach helps ensure that portfolios remain resilient across market cycles, rather than being overly exposed at potentially more volatile points in time.