Market Insights

Australian equity markets began 2026 with continued divergence beneath the surface. The S&P/ASX 200 rose +1.78% in January, supported primarily by a powerful rally in Materials, while growth-oriented sectors and the Quality factor remained under pressure.

The defining feature of the month was commodity strength. Gold rose approximately +13% in USD terms, extending what has now been one of the strongest multi-year advances in decades. Central bank gold purchases, which according to the World Gold Council reached record levels in 2024 and remained elevated through 2025, continue to provide structural support. Copper also firmed, metallurgical coal rallied, uranium strengthened, and spodumene prices surged sharply.

In contrast, Technology stocks declined heavily as global markets grappled with the accelerating pace of AI development. Several new large language model releases in December and January heightened concerns about disruption risk for incumbent software businesses. The result was a rapid compression in valuation multiples globally, particularly across high-duration growth equities.

We highlight caution when assessing any new technology investment given the current pace of distribution and supersession.

From a macro perspective, Australian inflation data for the December quarter surprised modestly to the upside, with headline CPI at 3.8% year-on-year and trimmed mean inflation remaining, in our opinion, sticky. Producer price inflation also remained firm. As a result, expectations for the RBA cash rate target have been repriced materially, and the RBA subsequently raised the cash rate by 25bps in early February to 3.85%.

The divergence between Australia and the United States remains noteworthy. While the Federal Reserve is broadly expected to continue its easing cycle, Australia’s policy stance is more neutral to mildly restrictive. This interest rate differential, combined with strong commodity prices, saw the Australian dollar rally approximately +4.4% in January to around US$0.70.

Globally, equity markets were constructive. Emerging markets outperformed (+8.8%), Japan remained firm, and the S&P 500 advanced modestly. However, beneath headline returns, sector rotation has intensified. The dispersion between winners and losers, both across sectors and within them, continues to widen.

In our view, this environment reinforces the importance of disciplined active management. Markets are increasingly differentiating between balance sheet strength and leverage, genuine cash-flow durability and narrative growth, structural advantage and commoditised exposure.

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Market Insights

Australian equity markets finished the year on a stronger note, with the traditional “Santa rally” delivering a +1.3% gain for the S&P/ASX 200 in December, taking full-year returns to approximately +10%. While headline performance was constructive, market dynamics beneath the surface remained fragmented, continuing the theme rotations that characterised much of 2025.

Macroeconomic data releases were lighter through the month, but commentary from the RBA reinforced a more cautious policy stance. The Bank left the cash rate unchanged at 3.60%, citing a still-tight labour market and stronger-than-expected business investment. Importantly, the RBA pushed back against expectations of near-term rate cuts, leaving investors with a more asymmetric outlook in which policy easing appears distant, and the risk of higher-for-longer settings remains possible.

Sector performance told a clear story. Materials was the standout in December and for the year as a whole, benefiting from tailwinds across commodities. Gold prices surged above US$4,300/oz, copper rose sharply, and lithium prices continued their recovery from mid-year lows. These moves drove strong relative performance across gold producers, base metals, and select bulk commodity exposures.

In contrast, Technology and Healthcare were among the weakest sectors, reflecting a continued de-rating of higher-multiple growth stocks amid a less supportive interest-rate backdrop and a stronger Australian dollar. The Quality factor, which dominated returns in earlier phases of the cycle, remained under pressure as momentum and value continued to lead.

Encouragingly, small and mid-cap equities showed greater resilience, supported by, in our opinion, more attractive starting valuations, stock-specific catalysts, and ongoing corporate activity. The dispersion between winners and losers remained wide, reinforcing the importance of active management and bottom-up research.

Moving to global markets, December was more balanced. U.S. equity markets advanced modestly, supported by cooling inflation data and expectations for further Federal Reserve rate cuts following the December easing. In contrast to Australia, the U.S. policy trajectory appears more clearly biased toward gradual easing, which has supported equity multiples and earnings sentiment.

Europe remained steady but subdued, while Japan continued to stand out as a relative outperformer, driven by earnings momentum and ongoing governance reform. China’s market was mixed, with targeted stimulus measures providing some support, but property-sector weakness continuing to weigh on confidence.

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Market Insights

Australian equity markets declined in November, with the S&P/ASX 200 falling 2.7%, underperforming most developed markets. Domestic sentiment was weighed down by a stronger-than-expected inflation print, which prompted a reassessment of the interest-rate outlook.

The introduction of the new monthly CPI series saw headline inflation print at 3.8% y/y, reinforcing concerns that inflation (particularly in services) remains more persistent than anticipated. With unemployment holding around 4.3%, markets are paring back expectations for further rate cuts, with policy now expected to remain restrictive for longer. There is even discussion emerging of rate hikes in 2026.

Performance was marked by sharp sector divergence. Healthcare (+2%) and Materials (+1.7%) were the best-performing sectors, supported by positive AGM updates and continued strength in gold-exposed stocks. In contrast, Information Technology (-11.6%), Financials (-6.5%), and REITs (-3.8%) lagged, as higher rate expectations and valuation sensitivity weighed heavily on duration-exposed assets.

Beneath the index, leadership continued to rotate. Small and mid-cap stocks again showed relative resilience, with the ASX Mid-Cap 50 the only major index to finish the month higher, while the ASX20 was the weakest performer. We believe this reflected both more attractive valuation starting points and increased investor focus on company-specific fundamentals amid macro uncertainty.

M&A activity remained a notable feature despite weaker markets. November saw continued interest across infrastructure and logistics assets, including bids for Qube and National Storage REIT, highlighting the growing disconnect between public market valuations and private capital’s assessment of long-term asset value.

Globally, November was characterised more by cooling momentum than outright risk aversion. Importantly, Fed communication has been less about committing to rapid cuts and more about watching the data, particularly around inflation and the labour market.

Europe remained subdued but stable. Inflation is continuing to moderate (including lower services inflation), and the ECB’s tone has been consistent with a wait-and-see stance.

Japan has continued to stand out as a relative bright spot, supported by earnings momentum and governance reforms. Meanwhile. China remains mixed with targeted policy support helping at the margin, but property-related weakness is still a meaningful headwind to confidence and activity.

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