My thoughts

Market Overview

June delivered a strong finish to the 2025–26 financial year, with global equity markets producing their strongest quarterly performance in several years.US equities continued to lead global markets as investors focused on resilient economic growth, strong corporate earnings and the ongoing Artificial Intelligence (AI) investment cycle. During the June quarter, the S&P 500 gained 15% while the Nasdaq surged 21%, marking their strongest quarterly gains since the second quarter of 2020. US markets closed the financial year with renewed momentum despite ongoing geopolitical uncertainty.

Australian equities also delivered positive returns over the financial year; however, they continued to underperform most developed markets. Investors increasingly favoured economies with stronger productivity growth, better earnings momentum and greater exposure to technology and Artificial Intelligence.Volatility eased throughout June as oil prices retreated following progress towards a ceasefire in the Middle East. While geopolitical risks remain, lower oil prices have helped reduce immediate inflation concerns and improve investor confidence.

Global Developments

Three key themes continue to shape global markets.

Artificial Intelligence continues to drive global growth

Artificial Intelligence remains the dominant structural investment theme.Investment into AI infrastructure, semiconductor manufacturing, cloud computing, robotics and data centres continues at an extraordinary pace, supporting corporate earnings and driving productivity improvements across many industries.Market leadership is also broadening beyond the largest technology companies into industrials, healthcare, infrastructure and businesses successfully applying AI to improve efficiency and profitability.One of the defining investment events of June was the successful listing of SpaceX (Nasdaq: SPCX).

The company's record-breaking market debut highlighted investor appetite for businesses driving structural technological change across space exploration, satellite communications, Artificial Intelligence and advanced manufacturing.

The listing also saw Elon Musk become the world's first trillionaire, demonstrating the extraordinary wealth that can be created through long-term innovation, entrepreneurship and disruptive technologies. While companies of this scale are exceptionally rare, they reinforce an important investment lesson: transformational businesses have the potential to create significant long-term shareholder value and reshape entire industries.

Geopolitics and Energy

Progress towards a ceasefire in the Middle East reduced pressure on global energy markets during June.Oil prices moderated from earlier highs, easing immediate inflation concerns. Nevertheless, governments around the world continue to prioritise energy security, recognising that reliable energy supplies and resilient supply chains remain fundamental to long-term economic growth.

Japan presents long-term opportunities

The Japanese yen has fallen to its weakest level in almost forty years.While the weaker currency has increased imported inflation for Japanese consumers, it has also improved Japan's export competitiveness and made the country increasingly attractive for tourism and overseas investment.Combined with improving corporate governance, shareholder reforms and attractive company valuations, Japan continues to present compelling long-term investment opportunities.

Australian Economy

Australia continues to face a more challenging economic backdrop than many developed economies.The Reserve Bank of Australia left the cash rate unchanged at 4.35% during June while making it clear that inflation remains above target and further interest rate increases remain possible should inflation expectations become entrenched.Although headline inflation eased modestly during the month, underlying inflation and wage pressures remain elevated. Weak productivity continues to limit Australia's long-term growth potential and remains one of the country's greatest economic challenges.Higher interest rates, slowing household spending and subdued business confidence continue to weigh on corporate earnings.Reflecting these structural challenges, BlackRock, the world's largest asset manager, has again reiterated its underweight position on Australian equities, preferring the United States and Asia where productivity growth, earnings momentum and exposure to AI continue to drive superior long-term returns.

Australian Federal Budget

The longer-term implications of the 2026–27 Federal Budget continue to generate considerable debate.The proposed changes to Capital Gains Tax, negative gearing, discretionary trusts and Division 296 superannuation tax represent some of the most significant changes to Australia's investment landscape in decades.

While the Government's objective is to increase revenue and improve housing affordability, the projected fiscal benefit appears relatively modest.

Current estimates suggest the proposed negative gearing and Capital Gains Tax reforms are expected to generate less than $3 billion per annum by 2030—equivalent to approximately 0.4% of total Commonwealth tax revenue.

The broader concern is not simply the additional tax revenue, but the investment incentives these policy settings create.Capital naturally seeks the most attractive risk-adjusted, after-tax return.

As Australia's investment environment becomes less competitive through:
• Higher taxation on investment capital
• Division 296 superannuation tax
• Proposed Capital Gains Tax reforms
• Removal of negative gearing incentives
• Increasing union influence across key sectors
• Rising energy costs and policy uncertainty
• Expanding environmental regulation
• Increasing green and red tape

there is a growing risk that investment capital will increasingly be deployed offshore.

Over time this may reduce business investment, innovation, housing construction and productivity growth, ultimately creating a shortage of productive capital within Australia.The greatest long-term consequence may be borne by younger Australians.

As incentives to invest, save and accumulate wealth are reduced through an increasingly punitive tax structure, future generations may find it significantly harder to build wealth through entrepreneurship, property ownership and long-term investing.

Australia remains an exceptional country with abundant natural resources, highly skilled people and world-class businesses. However, sustainable improvements in living standards require policy settings that encourage investment, innovation and productivity. Competitive taxation, affordable and reliable energy, lower regulatory burdens and greater policy certainty remain critical to maintaining Australia's long-term international competitiveness.

Outlook

Looking ahead, markets remain focused on:
• Inflation and central bank policy
• Global corporate earnings
• Artificial Intelligence investment
• Geopolitical developments
• Energy prices
• Australia's productivity outlook

While global economic growth has proven more resilient than expected, interest rates are likely to remain higher for longer than many investors anticipated earlier this year.This environment continues to create attractive opportunities within floating-rate debt and high-quality credit, allowing investors to generate compelling income while maintaining defensive characteristics within diversified portfolios.

We also continue to believe global diversification remains increasingly important as Australia's earnings outlook continues to lag many developed markets.

Final Thoughts

The 2025–26 financial year reinforced several important investment themes.

Global capital continues to flow towards economies that foster innovation, productivity and entrepreneurship.

Artificial Intelligence remains the defining structural investment opportunity of this decade and continues to drive unprecedented investment across technology, infrastructure, advanced manufacturing, healthcare and digital infrastructure.

The remarkable rise of companies such as SpaceX demonstrates how innovation can create extraordinary long-term wealth for investors and reshape entire industries.

While these opportunities are not common, history consistently shows that transformational businesses generate a disproportionate share of long-term investment returns.

Australia continues to face structural challenges, including weak productivity growth, elevated taxation, increasing regulation, higher energy costs and slower corporate earnings growth.

These factors have contributed to the Australian share market underperforming many global markets over the past financial year.Maintaining globally diversified portfolios remains one of the most effective ways to access superior long-term growth opportunities while reducing reliance on any single economy.

At the same time, the higher interest rate environment continues to provide attractive opportunities in floating-rate debt and high-quality credit, enabling portfolios to generate strong income while providing resilience during periods of market uncertainty.

As always, remaining disciplined, diversified and focused on long-term objectives remains the most effective strategy for preserving and growing long-term wealth.

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