Asset class summary

Asset class returns in Australian dollars – periods to 31 July 2026

Past performance is not a reliable indicator of future performance.

Sources: Australian shares - S&P/ASX 300 Total Return Index; Global shares (hedged) - MSCI All Countries World (A$ hedged, Net); Global shares (unhedged) - MSCI All Countries World in A$ (Net); Emerging markets - MSCI Emerging Markets in A$ (Net); Global property securities - FTSE EPRA/NAREIT Developed (A$ hedged, Net); Global listed infrastructure - FTSE Global Core Infrastructure 50/50 (Hedged $A); Australian bonds - Bloomberg AusBond Composite 0+ Yr Index; Global bonds (A$ hedged) - Barclays Global Aggregate (A$ hedged, Gross); Global high yield bonds (A$ hedged) - Barclays US High Yield Ba/B Cash Pay x Financials ($A Hedged); Australian inflation-linked bonds - Bloomberg  AusBond Inflation Government 0+ Yr Index; Cash - Bloomberg AusBond Bank Bill Index; AUD/USD - WM/Reuters Daily (4 pm GMT).

Key events in global markets over the last three months to July 2026

Global shares (hedged) made a very strong quarterly return of 5.1%. The start of the Iran War in late February had seen global share prices fall sharply in March. April’s announcement of a ceasefire between Iran and the US has allowed global share markets to make an encouraging recovery. However, this has been a rollercoaster ride for investors as share markets have been acutely sensitive to events in the Middle East.  For global shares (unhedged), the declining Australian dollar has served to boost the quarterly return to 6.9%.

Optimism on AI has been the key driver of US share prices achieving historic highs in early June. The largest technology companies such as Alphabet, Amazon, Microsoft and Nvidia are rapidly raising their AI capital investment which is also supporting US economic activity.

Some of Asia’s key share markets have delivered more modest performances in recent months after very strong gains earlier this year. Taiwan’s shares with a 13.8% quarterly return and Korea at 8.1% still provided investors with remarkable gains on AI optimism. However Chinese shares disappointed with a -1.9% return as weak consumer spending and a struggling property sector weighed on sentiment.

Global bonds (hedged) posted a subdued 0.2% quarterly return. Concerns over the inflation risk with the Iran War has generated sharp rises in global bond yields this year. Australian bonds posted a solid 2.1% quarterly return with hopes that recent better inflation results might allow the RBA to keep interest rates steady.

Key events in Australia over the last three months to July 2026

Australian shares delivered a strong 4.0% quarterly return but this was a mixed performance across industry sectors and stocks. Some of the sectors that were beaten down in March have made a recovery over the past quarter. Notably there were strong gains for the Consumer Staples (10.7%) and Financial (4.6%) sectors given hopes the central bank has finished raising interest rates. The Health Care sector showed a modest revival with a 4.7% quarterly return after the disappointing performances from Cochlear and CSL earlier this year. However, there were some weak performances. The Energy sector sharply retreated with a -4.1% quarterly return as oil and natural gas prices fell back after the recent Iran – US ceasefire.

Australia’s economy did show signs of improvement in June with stronger jobs growth and milder inflation. This is welcome news after the subdued performance in the opening months of the year. The sharp rise in Australia’s inflation had seen the RBA aggressively raise interest rates three times this year in February, March and May. The Federal Budget’s announcement of major changes to capital gains tax and negative gearing in May had also cast a shadow over prospects for the residential property market

Global prospects

Financial markets remain precariously placed between hopes that AI will generate strong economic growth with milder inflation and the reality that the Middle East is in turmoil. Global energy prices have recorded sharp swings given the Iran War’s shifting tides of conflict and then ceasefire. Until a convincing peace agreement is signed and the drones and missiles stop flying, financial markets and commodity prices remain vulnerable.

If the Iran War intensifies again, this would be a severe challenge for the global economy. Both inflation and unemployment could dramatically rise. For central banks around the world this creates a major policy dilemma – should central banks raise interest rates to restrain inflation pressures or lower interest rates to assist economic activity and mitigate rising unemployment.

Regrettably, Australia’s central bank has been a pioneer in raising interest rates three times this year. The European and Japanese central banks also raised interest rates in June. If other major central banks such as the US Federal Reserve follow suit with interest rate rises, this could challenge the recent strong performance of global share prices. 

Australian consumers are still being challenged by persistent inflation. Price pressures in food, health and housing are squeezing budgets. This continuing “cost of living” squeeze is likely to weigh heavily on consumer spending over coming months. Lower house prices will also caution some consumers on their spending.

Given these complex and significant risks, investors should maintain a disciplined and diversified strategy.