Asset class summary

Asset class returns in Australian dollars – periods to 30 September 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 September 2026

Global shares (unhedged) made a mild quarterly return of 1.2%. Optimism on AI has been the key driver of rising share prices in the US and select Asian markets. However, the Iran War has generated sharp swings in bond yields and commodity markets over recent months. The brief ceasefire between Iran and the US collapsed in July with the resumption of military strikes and another closure of the Strait of Hormuz as a shipping route.

While global shares have shown remarkable resilience to events in the Middle East this year, this strength is now being tested as the Iran War intensifies once again. Wall Street made historic highs in August but since then has drifted lower. European share markets have displayed a similar performance of strong gains in July and August followed by a more cautious tone. Chinese shares have delivered a subdued quarterly return as weak consumer spending and a struggling property sector weighed on sentiment.

Global bonds (hedged) posted a disappointing -2.4% quarterly return. Concerns over the inflation risk with rising energy prices and persistent government deficits have generated sharp rises in global bond yields this year. Australian bonds have also struggled with the inflation threat by recording a -1.5% quarterly return.  

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

Australian shares made a modest 1.3% quarterly return, but this was a mixed performance across industry sectors. Some of the sectors that were beaten down earlier this year have made a recovery over recent months. The Health Care sector made a remarkable revival with a 25.4% quarterly return as investors considered that Cochlear and CSL had become cheap. There were also strong gains for the Energy sector given the surge in oil and gas prices with the Middle East conflict. The Resources sector also performed well given higher metal prices.

However, there were large share price declines in a range of sectors exposed to the threat of higher interest rates and a consumer spending slowdown. The Consumer Discretionary sector slumped by -10% while the Real Estate sector fell sharply by -8.7%.

Australia’s economy is confronting significant challenges given persistent high inflation and rising interest rates. Consumer spending is slowing as the ‘cost of living’ squeeze continues. Housing prices are now falling given the Federal Government’s announcement of major changes to capital gains tax and negative gearing in May as well as higher mortgage interest rates.

Australia’s high inflation remains troubling and has motivated the RBA to raise interest rates for the fourth time this year in September. Persistent price pressures remain prominent in a wide range of goods and services. Housing costs have increased by 5.7% over the year to August through a combination of higher electricity prices (13.2% annual inflation), new dwelling construction costs (5.4% annual) and rents (3.6%). Healthcare costs have risen by 3.9% and education has increased by 4.7% in the past year. This persistent inflation has seen financial markets expecting another RBA interest rate rise in coming months.

Global prospects

Financial markets remain precariously placed between hopes that AI will drive strong economic growth and corporate profitability and the harsh reality that Eastern Europe and the Middle East remains in turmoil.

The recent escalation of the Iran War and the Russia-Ukraine War presents a severe challenge for the global economy. Shipping costs have surged while there is limited spare capacity in fuel refineries around the globe to produce sufficient diesel and petrol supplies. Should this energy shock intensify further, the pain will spread beyond the service station bowser as both inflation and unemployment dramatically rise. For central banks around the world this creates a major policy dilemma. Do central banks continue to raise interest rates to restrain inflation pressures or lower interest rates to assist economic activity and mitigate rising unemployment?

Regrettably, major central banks are being compelled to raise interest rates to address the immediate inflation threat. The US central bank joined its fellow counterparts in Europe and Japan by raising interest rates in September. Bond markets are now pricing in a sequence of further interest rate rises across the globe to address inflation risks. Global share markets could then prove vulnerable should central banks push interest rates too high and generate a recession that damages corporate profit prospects.

Australia’s persistent price pressures in food, health and housing continue to squeeze budgets. This “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.