Investor Intelligence – 13 October 2026

Global equities in hedged terms fell 0.7% last month while unhedged global equities rose 1.9%, supported by a weaker Australian dollar. Despite the softer monthly result, global equities remain one of the strongest-performing major asset classes, returning 16.8% over the year to September. The start of October has seen solid gains recorded for both hedged and unhedged, although hedged returns are outperforming. From 1-9 October, returns for hedged are 1.5% versus 1.0% for unhedged.

World equity markets were restrained by a sharp rise in global bond yields, which has been one of the most significant market developments in recent weeks. Investors increasingly priced in the prospect that inflation will remain higher for longer, driven by rising energy prices and the escalation in the Middle East conflict. Brent crude prices rose 16.2% in September, averaging US$102.37 per barrel, and have remained elevated in October, averaging US$102.09 per barrel so far.

At the same time, central banks continued to signal concern about broader inflation pressures, with the RBA, European Central Bank, US Federal Reserve, Reserve Bank of New Zealand and Bank of Japan raising interest rates during September. UK’s Bank of England is expected to follow. Particularly noteworthy was the Federal Reserve’s decision to resume rate hikes after an extended period on hold, prompting investors to reassess the outlook for interest rates globally. Despite tighter monetary policy and higher energy prices, global composite PMI surveys strengthened through the September quarter and rose to their highest levels in around a year, led by a notable improvement in the United States. The resilience in activity has supported expectations that global growth will slow rather than contract sharply, but it has also reinforced concerns that inflation pressures may prove more persistent.

Share market performance varied across regions. US equities were relatively resilient with gains in large-cap technology and companies tied to AI helping to limit broader market declines. In contrast, smaller companies came under greater pressure with the Russell 2000 underperforming as higher borrowing costs weighed on more interest rate-sensitive businesses.

Strength in AI-related sectors also supported markets in Japan, Taiwan and South Korea. In contrast, European equities underperformed amid concerns about higher energy prices, rising bond yields and weaker growth prospects. Chinese equities also lagged regional peers, as ongoing concerns about the property sector, subdued domestic demand and broader growth challenges overshadowed support from technology-related themes.

Market conditions remained challenging into October with the index declining a further 0.9% between 1 and 9 October. The September decline was broad based with only two of the market’s eleven sectors posting positive returns.

Health care was the strongest-performing sector in September, supported by gains in CSL, Ramsay Health Care and Cochlear. CSL’s recovery provided an important offset to weakness elsewhere in the market and contributed to health care being one of only two sectors to record a positive return over the month.

Investor sentiment was also affected by the RBA’s decision to resume its tightening cycle. On 29 September, the RBA raised the cash rate by 25 basis points to 4.60%, marking its fourth increase this year, as upside inflation risks began to materialise. Interest-rate markets are currently fully pricing in at least one further rate increase by March next year.

Housing remains a key area of focus for investors and households. Falling dwelling prices, weaker turnover and soggy buyer sentiment are important channels through which higher interest rates can slow the economy. Prolonged weakness would weigh on construction, household spending and housing-related businesses, adding to the drag on economic growth. More detailed analysis is provided in our separate monthly housing report.

Elsewhere, investors continued to favour businesses exposed to structural growth themes, including AI, data centres and supporting electricity infrastructure. However, the collapse of Firmus’ proposed $44 billion ASX float highlighted growing investor discipline. Despite expectations of significant interest, prospective investors were concerned about the company’s limited operating history and the substantial debt required to build its portfolio of data centre projects. Firmus has since indicated it will seek further funding from existing investors and pursue a Nasdaq listing. The episode showed that enthusiasm for the AI infrastructure buildout does not extend to every opportunity at any price. The failed float also reflected growing investor discipline. Leverage, liquidity and valuation risks are once again receiving greater scrutiny.

Despite the recent pullback, Australian equities have returned 2.4% over the year to end September and delivered an annualised return of 11.3% over the past three years, highlighting the market’s resilience through a period of elevated inflation, rising interest rates and uneven economic growth.

The weakness extended into October with Australian fixed interest declining a further 0.8% and global fixed interest falling 1.3% between 1 and 9 October. The sell-off in bonds reflected a significant reassessment of interest-rate expectations, rising concerns about inflation and increasing investor scrutiny of government borrowing and fiscal sustainability. There was also substantial debt raising by US hyperscalers to finance the AI buildout, which intensified the competition for capital.

The reassessment of interest-rate expectations was most pronounced in the United States following a rate increase by the Federal Reserve on 17 September and hawkish commentary from Federal Reserve Chair Kevin Warsh. US 2-year Treasury yields rose 53 basis points during September and reached 4.78% on 28 September, their highest level since August 2007. US 10-year Treasury yields increased by 52 basis points over the month and subsequently rose to 4.91% on 5 October, their highest closing level since 2007. Both yields have eased modestly in October. The US 2-year yield has declined 9 basis points over 1-9 October and the 10-year yield has fallen 5 basis points over the same period.

Fiscal concerns were also an important driver of bond markets during September. French 10-year government bond yields recorded some of the largest increases among major economies after the government indicated it would miss its 2026 budget deficit target. This heightened investor concerns around fiscal sustainability and government debt levels, themes that have become increasingly prominent across a number of advanced economies. These concerns, together with the sharp rise in US Treasury yields, contributed to higher long-term bond yields globally, including in Australia.

In Australia, domestic monetary-policy expectations added to the upward pressure on bond yields. The RBA raised the cash rate by 25 basis points to 4.60% on 29 September, its fourth increase this year. Interest-rate markets are currently fully pricing in at least one additional rate increase by March 2027. Expectations of further RBA tightening drove a sharp rise in shorter-dated yields. The Australian 2-year government bond yield rose 27 basis points during September. Australian 3-year swap rates also rose by 27 basis points over the same period. As a key benchmark for fixed-rate borrowing, including mortgage and business lending, higher swap rates point to rising funding costs across the economy. Meanwhile, the 10-year government bond yield increased by 26 basis points, reflecting both domestic policy expectations and the broader global sell-off in longer-dated bonds.

Both Australian government bond yields reached their highest levels since 2011 during September. The 2-year government bond yield closed at 5.06% on 28 September, while the 10-year government bond yield reached 5.42% on both 15 and 28 September. Bond markets stabilised somewhat in early October with the 2-year government bond yield easing 5 basis points to 4.91% on 9 October and the 10-year government bond yield declining 1 basis point to 5.34% on 9 October. Despite this modest pullback, both yields remain near 15-year highs.

Investment grade credit markets also delivered negative returns, hurt by rising yields and wider spreads. Spreads widened only slightly amid supportive corporate fundamentals and steady investor demand for floating-rate instruments. High-yield credit performed comparatively well, benefiting from higher starting yields, shorter duration and continued strength in company balance sheets.

Private credit also attracted increased attention during September. On 29 September, Metrics suspended redemptions from its unlisted wholesale income and real estate debt funds, which collectively held $11.4 billion. The collapse of Sydney property developer Bathla, which had significant private-credit backing, also forced several funds to limit redemption requests. The Australian Securities and Investments Commission (ASIC) has increased its scrutiny of loan valuations, particularly distressed loans that have not yet been written down, while the Australian Prudential Regulation Authority (APRA) has flagged private credit for increased supervision because of the potential implications for financial stability and retirement savings. These developments reinforce the importance of liquidity management, transparent valuations and careful credit assessment in a higher interest-rate environment.

Currency markets were also driven by diverging interest-rate expectations. The US dollar strengthened broadly against most major currencies during September. The US dollar (USD) index appreciated by 2.0 index points last month and extending its gains into October to reach 102.17 on 12 October at the time of writing. Markets currently expect around three additional rate increases from the Federal Reserve over the coming year, compared with one further increase from the RBA.

The Australian dollar (AUD) fell by 2.2 US cents during September and declined a further 0.35 US cents between 1 and 9 October. The weaker Australian dollar helped improve returns for unhedged international investors. Beneath the headline weakness, the AUD/USD exchange rate experienced significant volatility; it reached a six-week high of 0.7218 cents on 7 September.

One notable exception to the broad-based strength of the US dollar was the Japanese yen, which appreciated against the greenback during September. The move was supported by expectations of further policy tightening by the Bank of Japan, together with ongoing market sensitivity to actual and potential intervention by Japanese authorities aimed at supporting the currency. The prospect of further intervention helped underpin the yen at a time when most major currencies were weakening against the US dollar.

Australian listed property fell 2.4% during the month, while global listed property declined 2.5% and global listed infrastructure lost 3.5%.

Performance was mixed over 1 to 9 October with global listed infrastructure rebounding 1.5%, but global listed property and Australian listed property declining a further 1.0% and 0.6%, respectively.

The rise in long-term bond yields have weighed on valuations across both sectors in recent months. In Australia, 10-year government bond yields reached their highest levels since 2011 during September, while US Treasury yields climbed to their highest levels since 2007. Higher bond yields reduce the relative attractiveness of the long-dated income streams generated by property and infrastructure assets, prompting investors to demand higher returns and placing downward pressure on valuations.

Composite PMI readings improved across many major economies during the September quarter with the United States recording a particularly strong lift. This points to a firmer near-term backdrop for global activity and company earnings than many investors had anticipated. The other side of that resilience is that renewed cost pressures could slow the return of inflation to target, requiring central banks to raise rates further or keep monetary policy tighter for longer.

Australia presents a different picture. Having begun raising rates earlier than other advanced economies, it is now showing more visible signs of the cumulative effects of monetary tightening. Business conditions and consumer confidence have weakened, while falling dwelling prices and the deepening housing downturn are likely to weigh on construction, household spending and broader activity. Economic growth is slowing but remains above the economy’s speed limit, with persistently weak productivity constraining how quickly the economy can grow without generating inflation. We expect growth to ease to around 1.6% this calendar year and remain at a similar pace next year.

This leaves the RBA facing a difficult balance. Underlying inflation remains too high, yet the effects of earlier rate increases are becoming increasingly apparent in housing and other interest rate-sensitive areas. The September quarter inflation report, due in late October, will be central to the RBA’s assessment of whether current policy settings are sufficiently restrictive or whether another increase is needed at, or after, its 3 November meeting. Higher fuel prices associated with the Middle East conflict add to the near-term inflation risks.

For investors, the outlook is uneven. The AI investment cycle continues to support activity, earnings and capital expenditure across data centres, electricity networks and digital infrastructure. At the same time, higher funding costs are exposing weaknesses in housing, private credit and highly leveraged projects, while heavy government borrowing and geopolitical risks are adding to market volatility. Against this backdrop, maintaining diversification across asset classes, sectors and regions remains as important as ever.