Investment Market Update – August 2026

Australia Finally Takes the Lead

For much of the past 12 months, the Australian share market underperformed global markets due to its limited exposure to artificial intelligence and semiconductor stocks.

However, that weakness became a strength in July as investors began taking profits from crowded AI-related positions in the US and Asia.

Large sell-offs in semiconductor stocks and a sharp correction in South Korea’s technology-heavy Kospi Index prompted investors to rotate capital toward markets viewed as offering better value and lower AI concentration risk, including Australia.

The ASX 200 index benefited from this shift, rising to record highs and outperforming both Wall Street and many Asian markets.

Australia’s banking, resources and defensive blue-chip stocks attracted strong inflows as investors sought stability amid growing questions about whether the enormous capital expenditure being committed to AI infrastructure will ultimately generate acceptable returns.

The ASX’s relatively small technology sector, accounting for only around 2% of the index, shielded the market from the volatility experienced elsewhere.

Adding support locally were softer-than-expected inflation figures, which reduced expectations of further RBA rate increases and improved investor sentiment toward domestic equities.

Japan and the US Intervene to Support the Yen

One of the month’s most significant macro developments came from Japan and the United States, which undertook a coordinated intervention to support the Japanese yen for the first time since 1998.

The operation reportedly involved approximately US$87 billion of yen purchases, after the currency weakened to around 164 yen per US dollar, its lowest level in nearly four decades.

The weakness in the yen was driven by Japan’s ultra-low interest rates, large fiscal deficits and the popularity of ‘carry trades’, where investors borrow cheaply in yen and invest in higher-yielding overseas assets.

The rapid depreciation was creating instability in foreign exchange markets and raising concerns about Japanese government bond markets.

The US joined the intervention because a disorderly decline in the yen risked forcing Japanese investors to repatriate capital from overseas markets, including US Treasury bonds.

Such a move could have driven US bond yields even higher at a time when global debt markets were already under pressure from record government borrowing and massive AI-related capital expenditure.

The intervention successfully stabilised the currency in the short term and highlighted the growing importance of financial market stability in shaping policy decisions.

Software Stocks Return to Favour

After several months of investor concern that artificial intelligence could disrupt traditional software business models, July saw a notable shift in market sentiment.

Attention moved away from fears of disruption and towards evidence that software companies are successfully incorporating AI into their products, enhancing customer value and creating new revenue opportunities.

This trend was highlighted by Xero, which announced subscription price increases in the US (7-8%) and New Zealand (6-8%), effective from 1 October, while also beginning to phase out multi-organisation discounts.

These initiatives demonstrate Xero’s strong pricing power and support future revenue growth and profitability as the company continues to invest in product innovation and AI-enabled capabilities.

Reflecting improving investor confidence, Xero’s share price has risen approximately 8% since early July.

Wisetech Global has also benefited from renewed enthusiasm for the sector, with its share price increasing around 25% over the same period.

More broadly, investors are increasingly recognising that while spending on AI infrastructure may moderate over time, the productivity gains from artificial intelligence are likely to be felt across a wide range of industries.

Software, healthcare, financial services and industrial companies are emerging as key beneficiaries of AI adoption, helping market leadership broaden beyond the semiconductor sector and supporting a more diverse set of investment opportunities.

Looking Ahead

While market volatility remains elevated, July provided an encouraging reminder of the benefits of diversification.

Leadership broadened beyond the large AI winners of recent years; the Australian market regained investor attention; and policymakers demonstrated a willingness to intervene when financial market stability is threatened.

As our reporting season unfolds, investors will be watching closely how many listed businesses are travelling in an environment where there are signs of a slowdown in the domestic economy.