This month, Deanne Baker, Head of Multi-Asset and Alternatives takes a look at what’s driving the economy, why Australia looks different and the changes we’re making to portfolios.
Key Messages for Investors
- We remain fully invested, while rebalancing the sources of interest rate risk across portfolios.
- Global growth has proven more resilient than many expected. Four major investment cycles are underway simultaneously: artificial intelligence, the energy transition, defence spending and onshoring. Collectively, they are underpinning global growth despite higher interest rates.
- Inflation and bond yields have risen. This investment boom is driving competition for constrained supplies of power, materials and labour. Global bond yields are now at their highest levels in well over a decade.
- Australia stands apart. Domestic monetary policy is now restrictive and economic activity is moderating. We expect these conditions to place downward pressure on Australian bond yields over 2027.
- We are increasing our allocation to Australian bonds and reducing global bonds. Overall fixed income exposure is unchanged; we have adjusted its composition.
- We are reducing exposure to the most rate-sensitive assets. Historically, global small companies and global listed property have underperformed following sharp rises in bond
yields.