Australian equities closed the 2026 financial year with a subdued June, the S&P/ASX 200 returning 0.7% for the month and 6.1% for the twelve months to 30 June 2026.

Beneath that headline sat a sharp defensive rotation, as investors moved out of Resources and Energy following a tentative Iran-United States Memorandum of Understanding and eased geopolitical risk premia, and into Health Care, Consumer Staples, Consumer Discretionary and select Industrials that had been under pressure earlier in the year.

The 2026 financial year was defined, more than most, by dispersion.

·       Materials returned 52.2% and Energy 13.3%, driven by strength in gold, copper and lithium prices.

·       At the other extreme, Health Care fell 36.2% and Information Technology fell 33.4%. Health Care was dominated by CSL, where competitive pressure in its Behring plasma business, an immunoglobulin inventory overhang, softer China demand for albumin, further write-downs of Vifor, and an abrupt CEO departure combined to derate the stock from above 35x P/E to closer to 12x.

·       In Technology, the perceived threat of AI disruption weighed on software-based businesses such as Xero, Wisetech, Technology One and Life360, and by extension on Communications names including REA, Car Group and Seek.

Commodity markets set the tone.

Gold peaked near US$5,400 an ounce in January 2026 and eased to around US$4,000 by June end, still a 21% financial-year gain, as US rate expectations pivoted from cuts to hikes under new Federal Reserve Chair Kevin Warsh and higher inflation from a surging oil price. Copper rose more than 35% to US$13,375 a tonne, supported by data-centre, electric-vehicle and grid-infrastructure demand.

Lithium remained volatile: prices were supported through much of the year by the temporary closure of CATL’s Jianxiawo mine, before selling off in June on the announced restart. Oil fell 18.1% in June alone as the Iran-United States peace framework raised expectations that the Strait of Hormuz would revert to normal shipping traffic.

Domestically, the Reserve Bank held the cash rate at 4.35% following three consecutive hikes, retaining a hawkish bias while flagging data dependence. Governor Michele Bullock reiterated that the Bank stands ready to tighten further if required to return inflation to the target band.

The Fair Work Commission delivered an award wage increase of roughly 5%, and the ongoing impact of the Federal Budget tax changes has begun to show in the housing market, with dwelling prices declining 0.4% in June and ending three years of consecutive gains.

Unemployment improved to 4.4%, though the broader 2026 trend still points modestly higher.

Small caps lagged the broader market. The S&P/ASX Small Ordinaries fell 2.0% in June, reversing two months of outperformance, with Small Resources down 13.4% amid the commodity retracement. Small Industrials, by contrast, gained 3.9% on the same easing in geopolitical risk, with retailers, builders and technology names leading.

Globally, the S&P 500 declined 1.1% as the AI-led momentum trade paused after several months of strong gains.

In our view, the June rotation is a useful reminder that leadership in this market has been narrow and, at times, momentum-driven.

The dispersion between the best and worst-performing sectors over the year, more than 88 percentage points from Materials to Health Care, is unusual by any historical standard and reinforces the case for disciplined, bottom-up stock selection over passive exposure.

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Australian equity markets advanced modestly in May, with the S&P/ASX 200 Accumulation Index returning 1.1% for the month.

The recovery that began in April continued, although the domestic market lagged a broadly stronger global backdrop. The US S&P 500 rose around 5%, led heavily by the technology sector and artificial intelligence (AI) semiconductors, as offshore investors continued to reward the data-centre and compute build-out. In my view, the defining feature of the month was the narrowness of leadership: gains were concentrated in a small number of sectors rather than broadly distributed across the market.

The dominant domestic event was the Federal Budget for 2026-2027, which the Government delivered in May.

I regard it as the most significant change to the tax system since the introduction of the GST. The headline measures affecting individuals are material: investors will now pay their full marginal tax rate on all real capital gains, subject to a minimum applied rate of 30%; from 1 July 2027 negative gearing on residential property will be limited to new builds; and from 1 July 2028 discretionary trusts will attract a 30% minimum tax paid by the trustee.

The Government framed these reforms around housing affordability and inequality, coupled with a $2bn Local Infrastructure Fund and build-to-rent measures, alongside a $14.5bn package to strengthen fuel and fertiliser reserves. In my opinion the second-round effects of these changes have not been fully assessed, and they introduce a layer of uncertainty into the consumer, banking, and property outlook that the market is still digesting.

On monetary policy, the RBA raised the cash rate by a further 25 basis points to 4.35%, continuing to lean against inflation that remains above target.

The market has been pricing a further move to 4.60% later in the year, though I expect the Board to pause and assess the combined impact of the Budget and prior tightening before acting again (which they have done in June).

The inflation picture is genuinely mixed.

April headline CPI eased to 4.2%, the lowest reading of the current cycle, while core inflation ticked up to 3.4% from 3.3%, a reminder that the last leg of disinflation is likely to be the most difficult. Q1 GDP slowed sharply to 0.3% quarter-on-quarter, household consumption is softening, and unemployment rose to 4.5%, the first meaningful increase in some time.

Sector dispersion was wide. Materials was the standout, rising more than 10% as base metals rallied, with copper extending its structural advance on AI data-centre and energy-transition demand. Consumer Discretionary also gained, supported by softer data and the prospect that the rate-hiking cycle is nearing its end.

At the other extreme, Health Care was again the weakest sector, falling close to 9%, driven by a further earnings downgrade from CSL and an ongoing struggle with both the valuation and growth outlook for the sector.

Energy was weaker as oil softened on hopes of a Middle East resolution, alongside the defensive Consumer Staples and Utilities sectors.

Small Caps and Mid Caps both edged ahead of Large Caps, with the S&P/ASX Small Ordinaries Accumulation Index rising 2.03%.

We have written in past letters that we expect Quality to reassert itself as markets place greater value on strong balance sheets, predictable earnings, and durable cash flow, particularly in uncertain conditions.

May continued that trend, with the highest-quality names within our long books performing well. We do not draw firm conclusions from a single month, but the dispersion now evident across sectors and factors is precisely the environment in which I believe: disciplined, bottom-up active management can add value.

Australian equity markets bounced back in April, with the S&P/ASX 200 Total Return Index gaining 2.2% following the ceasefire between the US-Israel coalition and Iran.

The de-escalation of conflict in the Strait of Hormuz prompted a meaningful unwind of the risk-off positioning that drove March’s correction, although our local ASX market lagged the strong rallies offshore. The US S&P 500 returned approximately 10.4%, with major European and Asian markets recording gains of 5% to 14% in local currency terms.

In Australia, the macroeconomic picture continued to harden. The RBA recently raised the cash rate by a further 25 basis points, its third consecutive increase this year, taking the cash rate to 4.35%. Australian CPI accelerated to 4.6% year-on-year in March, with fuel prices alone contributing 1.1% to the headline figure. Trimmed mean inflation held at 3.3% annually, in line with the RBA’s February forecasts.

With unemployment near generational lows at 4.3% and wage growth running above population growth, the RBA further hiked rates in May taking the cash rate to 4.60%.

Sector performance reversed sharply from March.

·       Information Technology was the standout, gaining 13.2% as sentiment around data infrastructure and AI-related capital expenditure recovered.

·       Real Estate added 8.6%, with the market looking through implied higher rates to focus on CPI-linked rental income.

·       Materials returned 4.3% on improved base metals pricing.

·       Health Care was the weakest sector, falling 8.7% as earnings expectations were revised lower.

·       Consumer Staples also lagged, declining 4.1%.

Size dispersion was notable, with the Small Ordinaries returning 3.3%, the S&P/ASX 200 Ex-20 returning 2.7%, and the ASX 100 returning 2.2%, a reversal of March’s flight to large cap defensiveness.

Within the ASX 100, Quality was the leading long/short factor at 1.0%, with Growth contributing 0.8%, while Momentum lagged at -3.2%. April may mark the start of the Quality factor recovery we have been anticipating, as markets begin to differentiate between business models and reward genuine earnings durability.

In commodities, base metals rallied sharply. Copper gained 5% and nickel surged 14% as the ceasefire improved the demand outlook. Spodumene prices recovered 13% to US$2,660 per tonne and iron ore was broadly flat at US$108 per tonne. Brent crude fell 3.7% to US$114 per barrel, though futures pricing remains well above pre-conflict levels, embedding an ongoing inflationary tail risk. Gold eased 1%. The Australian dollar strengthened 4.4% against the US dollar to 0.72.

Forward earnings for the ASX 200 were revised modestly lower in aggregate, though the FY27 consensus growth outlook of 12.6% remains supportive.

In our view, the environment continues to reward businesses with genuine earnings resilience, particularly as the second-round effects of higher energy costs and the upcoming Fair Work wage decision present additional headwinds to margin expectations. The dispersion between the strongest and weakest sectors remains historically wide, reinforcing the value of disciplined active management.