Investor intelligence – 6 July

SpaceX made its long-awaited share market debut on 12 June in the largest initial public offering (IPO) on record, highlighting investors’ appetite for businesses at the intersection of AI, technology and innovation.

Attention has now shifted to the next generation of private tech giants, including Anthropic and OpenAI, as markets continue to reward growth with increasingly ambitious valuations. At around 100 times revenue, however, we wonder whether the numbers stack up.

Beneath the surface, market leadership is beginning to broaden. While the large technology companies continue to dominate headlines, they were not the strongest performers in June. Smaller companies outpaced many of the ‘Magnificent 7’ stocks, suggesting investors are looking beyond the handful of mega cap names that have driven returns in recent years.

The beneficiaries of the AI boom are also evolving. Rather than favouring the companies building AI models and cloud platforms, investors have increasingly gravitated towards businesses supplying the memory chips and hardware needed to power AI applications. As AI moves from development to real world adoption, demand for computing power and memory is rising rapidly. At the same time, many of the technology giants are spending heavily on new infrastructure, raising questions about how quickly those investments will translate into profits.

Unhedged global equities returned 3.2% in June, comfortably outperforming the 0.1% return from hedged exposures. Global share markets surrendered part of their gains in the latter half of the month but still ended June higher. For Australian investors, favourable currency movements provided an additional boost to returns from unhedged exposures.

South Korea’s Kospi index has been one of the strongest performing equity markets in recent months. However, a sell off in the second half of June erased earlier gains, leaving the index broadly unchanged over the month. In contrast, Japan’s Nikkei 225, Taiwan’s TAIEX and China’s CSI 300 were among June’s strongest-performing share markets.

Broader macroeconomic developments also influenced market sentiment during the month. June marked the first Federal Reserve meeting under new Chair Kevin Warsh, who struck a more hawkish tone than investors had anticipated. While the Fed left interest rates unchanged, policymakers emphasised ongoing inflation risks and reinforced their commitment to price stability. Markets responded by reassessing the outlook for monetary policy with interest-rate swaps moving to reflect a higher probability of rate increases before year end. However, a softer-than-expected June non-farm payrolls report, released on 3 July, saw some of those expectations unwind.

Meanwhile, geopolitical tensions in the Middle East eased after the US and Iran announced a ceasefire agreement on 14 June, paving the way for the reopening of the Strait of Hormuz to commercial shipping. The agreement helped alleviate concerns about a prolonged disruption to global energy supplies and reduced fears of another inflationary shock. Brent crude oil prices fell 17.8% in June to finish the month at US$72.92 a barrel, reversing much of the conflict-driven surge. Prices are now only marginally above where they stood before the conflict began on 28 February, having peaked at US$103.26 a barrel on 19 May.

Urea prices, a key fertiliser input, have also retraced their war-driven gains and returned to pre-conflict levels.

The strongest gains came from several of the market’s most heavily sold-down sectors in 2026. Healthcare rebounded strongly, as investors returned to names such as CSL, Cochlear and ResMed. These stocks are still significantly lower than their recent peaks. By contrast, parts of the resources sector weakened as investors took profits following a strong run, particularly as commodity prices softened after the US-Iran ceasefire eased concerns about global energy supplies.

The domestic backdrop remains mixed. Economic growth was resilient in the March quarter. Data in early June revealed gross domestic product (GDP) expanded by 2.5% in the March quarter, only slightly below the 2.6% pace recorded in the previous quarter, although much of that strength was driven by substantial investment in data centres. The labour market remained firm with the unemployment rate falling in May, while core inflation surprised on the upside. The RBA left the cash rate unchanged at its June board meeting and swap markets have lengthened the odds at the prospect of further tightening from the RBA. On 2 July, swap markets had a probability of 55% attached to one more rate hike before the end of this year. This compares to nearly 70% a month prior.

Financials were also in focus towards the end of the month after Judo Bank fell almost 40% following an earnings downgrade and an increase in provisions against a small number of troubled small-to-medium-enterprise (SME) loans. While the downgrade itself was relatively modest, the market reaction reflected concerns that higher interest rates may be starting to expose pockets of stress within the business sector. SME lending is often viewed as a leading indicator of turning points in the economic cycle, prompting investors to question whether these issues may extend beyond a handful of borrowers and extend beyond Judo Bank.

For now, however, the broader economy appears more resilient than the share price reaction might suggest. Employment growth remains strong, household spending has held up and the RBA retains considerable firepower should economic conditions deteriorate. Housing remains the clearest area of weakness, with auction clearance rates across the combined capital cities falling below 50% since late May and national dwelling prices declining for a third consecutive month.

In Australia, the yield curve was little changed with 2-year and 10-year government bond yields falling by 10 and 11 basis points, respectively. In contrast, the US Treasury yield curve flattened as short-term yields rose more sharply than longer-dated yields. The 2-year Treasury yield increased by 17 basis points and the 10-year yield rose by just 3 basis points. This reflected growing expectations that the US federal funds rate could move higher in coming months while in Australia markets lengthened the odds of another rate hike. The RBA continues to talk tough on inflation but mixed economic data means the markets see more of an even bet of one more rate hike.

Currency markets were dominated by broad-based US dollar strength. The US dollar index (USD) rose 2.3% over the month as investors shortened the odds of a rate hike from the US Federal Reserve before the end of this year and as the conflict between Iran and US waned with the signing of a peace deal.

Meanwhile, the Australian dollar during June, experienced broad-based weakness. The AUD/USD exchange rate started June near US$0.7190, its highest level of the month, before trending steadily lower and ending June at US$0.6865, its lowest level in almost three months. The Australian dollar fell 3.8% against the US dollar last month and declined 2.3% against the British pound, 2.0% against the euro and 1.7% against the Japanese yen.

Movements in the Japanese yen were particularly notable last month and into early July. USD/JPY spent much of June above the closely watched ¥160 level, an exchange rate that Japanese authorities have previously been uncomfortable with. The pair continued to rise in early July, reaching ¥162.84 before what appeared to be official intervention triggered a sharp reversal.

The weaker Australian dollar provided a meaningful tailwind for Australian investors with unhedged international exposures by increasing the value of offshore assets when translated back into local currency.

Commodity markets moved lower during the month. Brent oil prices fell 17.8% last month to below US$73 per barrel as traders anticipated an increase in supply following the reopening of the Strait of Hormuz to commercial shipping. Expectations that vessels delayed by earlier disruptions would be able to complete deliveries outweighed concerns that shipping volumes through the Strait remained constrained.

Global listed property rebounded strongly in June, returning 6.0% after a weak May. The sector benefited from improving investor sentiment as geopolitical tensions in the Middle East eased and concerns over a disruption to global energy supplies receded. While bond market movements remained mixed across regions, investors were increasingly willing to add exposure to valuation-sensitive assets, supporting a broad recovery in listed real estate markets.

Global listed infrastructure gained 4.9% in June, reversing much of the previous month’s decline. The asset class benefited from improving risk appetite and continued investor demand for businesses offering relatively stable cash flows, inflation-linked revenues and essential service exposures. Meanwhile, Australian listed property rose 1.7% over the month, supported by lower domestic bond yields and a reduction in market expectations for further RBA tightening.

Despite conflict in the Middle East, ongoing trade tensions and persistent inflation pressures, corporate earnings generally held up and investment associated with AI continued to expand.

The geopolitical backdrop remains an important source of uncertainty, although immediate risks have eased in recent weeks. The ceasefire has helped to alleviate concerns about global energy supplies. Oil prices have retreated from their highs and fears of ongoing disruptions to shipping through the Strait of Hormuz have diminished. While geopolitical risks remain elevated, markets appear increasingly comfortable that the economic fallout is likely to be more contained than initially feared.

Attention is gradually shifting back towards economic fundamentals and monetary policy. In Australia, markets have become increasingly confident that the tightening cycle has ended, despite inflation remaining above the RBA’s target range. Even so, markets continue to assign a near-even probability to one further rate increase before the end of this year. We continue to forecast one additional rate hike in the third quarter, although we view the decision as finely balanced.

In contrast, resilient US economic data and persistent inflation pressures prompted markets to shift from pricing in rate cuts to anticipating rate hikes. These rate-hike expectations have contributed to a stronger US dollar and a divergence in monetary-policy expectations between Australia and the United States.

Australia’s economic outlook continues to point to a period of slower growth, although the picture remains mixed with a two-speed economy prevalent across the states. Inflation remains above the RBA’s target band and services inflation continues to prove sticky, suggesting it is premature to completely dismiss the risk of one further rate increase.

Following post-Budget negotiations and consultation, the Federal Government announced a number of refinements to its proposed tax reforms. These included confirming restrictions on self-managed super funds (SMSFs) using borrowing arrangements to acquire residential property as part of its broader housing affordability agenda. Testamentary trusts were exempted from the proposed 30% minimum trust tax where they are established for genuine testamentary purposes. The Federal Government has further indicated that it intends to address unintended consequences arising from its proposed capital gains tax and negative gearing reforms, as well as the so-called “widow tax”, through a further round of legislation later this year

Looking ahead, several forces are likely to shape investment markets over the remainder of the year. The first is the ongoing interaction between geopolitical developments, energy markets and economic growth. While concerns about supply disruptions have eased, events in the Middle East have highlighted how quickly energy markets can influence inflation expectations and investor sentiment.

The second is the continued broadening of the AI cycle. What began as a technology-driven theme is increasingly supporting investment across data centres, electricity generation, digital infrastructure and industrial capacity. As the investment cycle expands beyond semiconductor manufacturers and technology companies, the economic benefits are likely to become more widely distributed across sectors and regions.

The third is the growing importance of resilience and security in economic decision-making. Governments and businesses are increasingly prioritising energy security, supply-chain diversification and strategic capability, influencing trade patterns, capital flows and investment decisions. These changes are contributing to a more fragmented global economy, but one that is also likely to support elevated levels of capital expenditure across infrastructure, defence, energy and technology-related industries.

In this environment, returns are likely to remain sensitive to developments in inflation, interest rates and geopolitics. While the easing in Middle East tensions is encouraging, financial markets already appear to reflect a relatively constructive outlook. Portfolio construction should, therefore, continue to emphasise diversification, resilience and selectivity, while maintaining exposure to long-term structural growth themes where the underlying investment opportunity remains compelling.