Investment Market Update – October 2026

Investment Market Update

Investment markets remain supported by resilient economic activity, healthy corporate earnings and continued investment in artificial intelligence.

However, as valuations rise and the market cycle matures, investors are becoming more selective and placing greater emphasis on earnings, cash flow and long-term value.

From Momentum to Fundamentals

The past two years have been defined by the rapid rise of artificial intelligence (AI), strong corporate earnings and surprisingly resilient economic growth.

But, while these factors have driven higher market returns, the investment environment is shifting.

Markets are becoming more selective, with investors increasingly focused on business fundamentals and long-term value, rather than simply rewarding exciting themes and growth stories.

From Enthusiasm to Evidence

Artificial intelligence remains one of the most important investment themes of our time. Unlike many past market trends, AI is already demonstrating its potential to transform industries, improve productivity and reshape how businesses operate.

However, investors are now asking more challenging questions about which companies will ultimately convert significant AI investment into sustainable profits and shareholder returns.

This shift marks an important change in market behaviour. Earlier in the cycle, companies with AI exposure often benefited simply from being associated with the theme.

Increasingly, markets are now looking beyond the narrative and rewarding businesses that can demonstrate strong revenue growth, profitability, cash flow generation and competitive advantages.

Earnings Continue to Support Markets

Corporate earnings remain broadly healthy, despite ongoing concerns surrounding geopolitics, government debt, elections and trade tensions.

Importantly, earnings growth is no longer confined to a small group of AI technology leaders.

Industrial companies, healthcare providers, financial institutions and selected energy businesses are now also contributing to market growth.

This broadening of earnings participation is a constructive development. Markets tend to be more resilient when returns are supported by a wider range of companies and sectors rather than relying on a handful of market leaders.

It also highlights businesses’ ability to adapt to changing economic conditions through efficiency improvements, investment, and innovation.

Economic Resilience Continues

One of the biggest surprises in recent years has been the global economy’s strength. While many economists anticipated recessions or more significant slowdowns, consumer spending, employment and business investment have remained relatively robust.

The United States remains a key example of this resilience. Significant investment continues to flow into AI-related infrastructure, including data centres, semiconductors, networking equipment and cloud computing platforms.

While these investments require substantial upfront capital, history shows that major technological advances often involve significant spending before long-term productivity and economic benefits become apparent.

Why Diversification Matters

The investment environment has also reinforced the importance of diversification.

Traditional portfolio relationships have become less predictable, particularly during periods when both shares and bonds have experienced simultaneous volatility.

As a result, effective portfolio construction is becoming increasingly important.

For Australian investors, diversification beyond the domestic market remains particularly valuable.

While Australia offers high-quality companies and attractive dividend yields, our share market remains heavily concentrated in the banking and resources sectors.

Exposure to global markets provides access to many of the world’s leading technology, healthcare and innovation-focused businesses that are not available locally.

This is why we continue to view international exposure as an important complement to Australian shares, rather than simply an alternative to them.

Looking Ahead

Our outlook remains constructive, although strong recent returns and elevated expectations mean markets may be more sensitive to earnings disappointments, economic data and changes in interest-rate expectations.

As markets mature, taking greater risk is not necessarily the path to better long-term outcomes.

We believe investors will be best served by remaining diversified, patient and focused on quality investments that are supported by sound fundamentals.