Stephen Miller

I’m not sure that the news flow of the last week or so has managed to advance whatever one may have been thinking about the decision of the Reserve Bank of Australia (RBA) Monetary Policy Board (MPB) at its next meeting in August.

The minutes from the June meeting noted that policy was ‘somewhat’ restrictive but at the same time exhibited some handwringing around elevated inflation expectations. What might have been at the forefront of the RBA Board’s contemplations was the Fair Work Commission (FWC) decision to award a 4.75 per cent increase in the minimum wage and awards. That such an increase occurred against a backdrop of ongoing abject productivity growth and how it might inform wider wage negotiations is clearly a concern going forward.

The May monthly consumer price index report (CPI) was not as bad as feared and is probably consistent with the most recently issued RBA forecasts back in May.

Nevertheless, Australian inflation remains elevated. Trimmed-mean consumer price index (CPI) inflation in Australia is currently running at 3.6 per cent. That puts Australia at the top the developed country inflation league. That is not a (developed) World Cup we should want to win!

Some more positive news since the June meeting has been declining oil prices which might mitigate the dangers of oil price inflation broadening into something even more pernicious.

But Australia’s inflation problem is way more than just oil prices, as illustrated by the aforementioned adverse comparison of Australian inflation with elsewhere in the developed world.

Jim Chalmers might have us believe that the Middle-East tensions and the attendant ratcheting up of the price of oil is the primary driver of our current inflation challenge, and yes there is a skerrick of truth in that, at least in absolute terms.

But the stark reality is Australia has a structural homegrown inflation proclivity.

That homegrown structural inflation proclivity reflects, inter alia, the interplay of regulatory creep in labour and goods markets that impose costs on businesses, part of which are passed on to consumers. The regulatory regime is also reflected in the abject productivity growth which makes the task of inflation containment all the harder.

As I’ve stated in the past, this state of affairs is not just down to the current Federal Government. Rather it reflects a long-standing policy deficiency since the end of the Hawke-Keating and Howard-Costello eras. Governments (both State and Federal and Labor and Coalition) have long averted their eyes from addressing productivity enhancing policy measures. Just as importantly, little attention has been given to avoiding productivity diminishing measures attaching to (mostly well-intentioned but poorly thought out) regulatory oversight of labour and goods markets.

Sure, (to paraphrase the Prime Minister) people don’t sit around the kitchen table talking about low (or negative) productivity growth. But productivity remains central to enhancing standards of living not the least through mitigating inflation.

The decision to “pause and reflect” at the June meeting was understandable given concerns about looming cyclical fragility. In that context it reflected a view that there was some utility in using the “space” provided by preceding policy rate increases to assess how the economy was adjusting and the impact of disruptions.

However, both the RBA minutes and Governor Bullock’s comments would indicate that the policy rate might still need to be increased at a later date. That reflects, inter alia, governments’ inability to support the RBA’s inflation battle with supportive structural policies.

So, in determining the course of the policy rate over coming months, the RBA faces considerable challenges having to negotiate a tricky (dare I say “narrow”) path between structural inflation factors and cyclical fragility.

The June CPI release later this month looms as a key staging post in how the negotiation of that path may evolve.

Eurozone June “flash” CPI: ECB to stand pat in July

Overnight, Euro area CPI inflation for June came in a little lower than expected at 2.8 per cent at the headline level (compared with 3 per cent expected). The core reading was also better than expected at 2.4 per cent (2.6 per cent expected).

While inflation remains above the ECB target of 2 per cent, there now seems almost no prospect of a policy rate (deposit facility) increase from the current 2.25 per cent at the July 22-23^rd meeting.

Speaking at the ECB’s Sintra Conference earlier in the week, ECB President Lagarde stated that she thought the ECB had gone some way to making the Eurozone economy less vulnerable to inflation shocks, perhaps reflecting a more rigorous financial framework.  She also noted that tensions in the Middle East had subsided (even if resolution was ‘far from assured’). Overnight at that same conference, Lagarde stated that she thought the risks to inflation and growth are ‘broadly balanced’ which would indicate that she sees no compelling case for a policy rate rise. (She also expressed a scepticism regarding the utility of “forward guidance” and other features of COVID era monetary policy such as “quantitative easing”.)

Other ECB decisionmakers are less sanguine.

Markets see the prospect of a hike in as closer to 30 per cent in September.

The latest set of ECB forecasts were based on Brent oil prices of around $US82 per barrel. It is currently at circa $US73 per barrel giving the ECB some “space” to digest whether further inflation pressures might necessitate a further increase.

Coming up: US non-farm payrolls tonight (ahead of Independence Day holiday)

As mentioned above, even more benign looking measures of inflation such as the Dallas Fed ‘s trimmed mean core PCE measure is, at was 2.4 per cent in May, still a way above the 2 per cent Fed “inflation” target.

And progress on the inflation front has been excruciatingly slow.

So absent some sharp and unforeseen deterioration in the labour market a policy rate cut hardly looks proximate.

Tonight sees the release of the June non-farm payrolls report ahead of Friday’s Independence Day holiday.

Indications are that the labour market remains in satisfactory condition.

The May Job Openings and Labor Turnover survey (JOLTs) report saw openings mostly unchanged at a healthy enough 7.6m.

The ADP June payrolls report showed a solid enough gain of 98k (even if lower than the 113k increase expected). The ADP report is sometimes dismissed (too easily in my view) because of its poor record in foreshadowing month-to-month movements in the Bureau of Labor Statistics payrolls measure. However, it is just as good a measure of the state of the labour market as the payrolls report.

The June Institute of Supply Management (ISM) manufacturing index (PMI) released overnight paints a reasonably satisfactory picture of the US manufacturing sector: the index coming in unchanged at 53.3. The employment component increased to to 49.7 from 48.6 in May (50.0 is the neutral point between expansion and contraction). The prices component declined to 73.0 from 82.1 in May. That is still elevated but maybe a harbinger of some easing of price pressures to come.  

A consensus outcome for payrolls of a circa 110k increase in employment and an unemployment rate unchanged at 4.3 per cent with average earnings growth of 3.5 per cent is not going to move the dial for any Fed members.

By Stephen Miller, investment strategist

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Decarbonisation is reshaping the global economy, creating long-term investment opportunities across clean energy, energy efficiency, circular economy infrastructure and climate-driven innovation.

Few themes rival the scale, urgency and long-term significance of climate change. Consequently, regions, countries, companies and individuals are taking positive action to decarbonise the planet and work toward net zero 2050 goals. For growth equity investors, decarbonisation is not simply a regulatory obligation or a moral imperative. It is the single largest, earnings-driven wealth-creation opportunity of our generation.

Decarbonisation has crossed the threshold from future ambition to today’s dominant economic reality, propelled by an unprecedented alignment of policy, corporate capital and investor mandate. With over 90 percent of global GDP now bound to net-zero targets, the regulatory floor has permanently shifted.

Corporate giants like Microsoft, Walmart and Samsung are no longer just making promises, they are deploying hundreds of billions of dollars to re-engineer supply chains, lock down clean energy grids and build climate-resilient operations. For investors, this isn’t a passive ESG checkbox; it is a directive to deploy capital into the businesses driving this structural transformation.

Yet, transitioning the global economy is a monumental task. Hitting terminal climate targets requires an enormous, sustained capital expenditure cycle across every major sector. While early market attention focused heavily on renewable energy and electric vehicles, the next phase of growth is far more diverse. The most compelling, earnings-driven opportunities now span critical, high-barrier sectors including advanced nuclear energy, energy efficiency and circular economy infrastructure.

Climate and the S-curve

Climate is not a cyclical trend; it is a permanent structural rewrite of the global economy that will span decades. Achieving net-zero emissions by mid-century will require estimated capital in excess of US$50 trillion. For growth investors, the critical question is no longer whether this capital allocation will happen, but rather, which companies will capture the lion’s share.

To reinforce the opportunity available to investors, one only needs to look at climate’s S-curve.

The S-curve models how an investment theme, such as climate, moves from niche concept to dominant market standard. Rather than a straight line, the S-curve breaks down into three distinct structural components, each representing a critical phase in that thematic’s lifecycle.

• Incubation phase – at the bottom of the curve, pioneering technologies often face high initial capital costs, regulatory bottlenecks and steep engineering hurdles.
• Inflection and acceleration – once a technology hits commercial viability it crosses a critical threshold. Costs drop, demand surges and growth enters a hyper-accelerated phase. The most resilient compounders in a global growth portfolio capitalise on this multi-year runway, scaling their total addressable market and generating durable earnings growth.
• Saturation – eventually, the curve flattens. The market matures, competition intensifies and incremental gains become harder to secure.

As illustrated in figure one, climate and related decarbonisation technologies are right at the start of the S-Curve. This means a long runway of growth, significant earnings growth potential and ultimately, positive contribution to investor portfolios.

Driving forces of the climate transition

This massive macroeconomic shift is sustained by an interlocking trio of structural drivers (figure two):

• Geopolitical policy and mandates – subsidies, tax incentives and regulatory penalties are setting a permanent economic floor for green tech adoption.
• Corporate capex reallocation – market leaders are proactively deploying hundreds of billions to future-proof their supply chains and operational resilience.
• Investor capital mandates – institutional asset allocation is permanently shifting, starving carbon-heavy legacy businesses of capital while rewarding green compounders.

Crucially, these three forces do not operate in isolation. They form a self-reinforcing feedback loop that creates a multi-decade compounding tailwind for the high-growth companies anchoring the transition. Let’s examine each of these tailwinds in greater detail.

Geopolitical policy – the foundation for action

Over the past decade, climate policies have evolved from aspirational targets to enforceable regulations, reshaping entire industries. The Paris Agreement set the global benchmark for emissions reduction, while COP28 reinforced the ambition with commitments to triple renewable energy capacity by 2030 and nuclear energy by 2050.

National policies are now following suit. The Inflation Reduction Act in the United States – despite some rollbacks from President Trump in the ‘One Big Beautiful Bill’ in July 2025 – and the European Union’s Green Deal are directing hundreds of billions of dollars in public support and mobilising trillions in total investment toward clean energy, electrification and industrial decarbonisation.

While the political landscape varies by region, the trend is clear – governments are using regulation, financial incentives and carbon pricing to steer capital toward low-emissions technologies. Countries representing more than 90 percent of global GDP have now adopted net-zero targets, up from roughly 16 percent in 2019^[1].

The scale of these policy-driven investment flows is accelerating the adoption of renewables, grid infrastructure, energy storage and efficiency technologies, thereby reinforcing the case for long-term structural growth.

Corporate leadership and capex reallocation

While government policy is providing the framework for the energy transition, corporate capital is increasingly driving its implementation. Some of the world’s largest companies are investing directly in renewable and low-carbon energy sources, including nuclear power, while securing long-term power purchase agreements (PPAs) to guarantee access to reliable, carbon-free electricity.

These investments are motivated by more than sustainability objectives. The rapid growth of AI, data centres and electrification are creating unprecedented demand for power, making energy security and affordability strategic priorities for businesses. At the same time, commercial property owners and industrial operators are investing in energy-efficient infrastructure. This ranges from HVAC systems, insulation and building upgrades, to lower operating costs and reduce emissions.

Together, these trends reflect a fundamental shift in corporate climate strategy. Rather than relying primarily on carbon offsets, businesses are embedding decarbonisation into their operations, supply chains and physical assets. This is creating growing demand for the technologies and infrastructure needed to support a lower-carbon economy, from energy storage and grid modernisation to advanced efficiency solutions.

Investor influence – capital allocation as a force for change

The financial sector is playing a critical role in accelerating the climate transition. Global investment in the energy transition reached a record US$2.3 trillion in 2025, up 8 percent from the previous year, with capital flowing into renewable energy, electrified transport, power grids, energy storage and other decarbonisation technologies^[2]. This demonstrates a compelling investment opportunity.

ESG strategies have shifted from passive screening to active capital deployment. Instead of just picking companies that already boast low emissions, forward-thinking investors are targeting the enablers of true decarbonisation – those scaling clean power, advancing the circular economy and maximising energy efficiency.

Concurrently, shareholder pressure is intensifying. Businesses face mounting demands to lock in emissions targets, boost transparency and clean up their supply chains. In short: climate risk is now a core financial risk, and laggards are losing their competitive edge.

Climate investing does not always mean avoiding high-emissions companies altogether. Some of the most critical investment opportunities lie in companies with significant carbon footprints that are leading their industries in decarbonisation – whether by transitioning to clean energy, adopting breakthrough efficiency technologies or setting ambitious emissions reduction targets. These businesses may not be low carbon today but their role in transforming industrial processes, power generation, and heavy transport is essential to reaching net zero.

Opportunities within climate: four key sub-themes

Within its climate fund, Munro Partners focuses on four key sub-themes: clean energy, energy efficiency, the circular economy and clean transport.

Clean energy – the foundation of decarbonisation

Clean energy is essential to reaching net zero. However, not all clean energy investments are created equal. Renewables like solar and wind are now well established, but they face increasing commoditisation, intense competition and supply chain risks. For example, Chinese dominance in solar panel manufacturing has driven prices lower and squeezed profit margins, making these investments less attractive. Meanwhile, the dependence of renewables on weather conditions means they cannot meet rising energy demand alone. Regardless of this, solar and onshore wind are on the trajectory to be the more cost competitive energy technologies globally^[3].

Nuclear energy, on the other hand, is seeing a resurgence as a reliable, carbon-free baseload power source. Hyper scalers, including Microsoft and Amazon, are actively securing long-term nuclear power contracts to meet their sustainability commitments and ensure a stable energy supply for their AI-driven data centres. While small modular reactors (SMRs) hold promise, their commercial deployment is still in the early stages and likely won’t scale until the 2030s.

While power generation is vital, a highly compelling investment opportunity exists in energy enablers. These companies provide the grid upgrades, energy storage and critical infrastructure required to seamlessly integrate renewable and nuclear power into the broader energy ecosystem.

Stock story: CATL (China)

Contemporary Amperex Technology Co. Limited (CATL) is the world’s largest battery manufacturer. holding a 39.2 percent global market share in electric vehicle (EV) batteries and 30.4 percent in grid-scale Energy Storage Systems (ESS) according to 2025 data from SNE Research. To sustain growth, the company is diversifying away from pure automotive dependency into higher-margin utility-scale storage, driven by surging AI data centre energy demands, alongside electric shipping and aviation.

Energy efficiency – the unsung hero of decarbonisation

Despite being an overlooked climate asset, energy efficiency outperformed renewables in reducing US emissions over the past decade. By eliminating demand at the source rather than just decarbonising supply, efficiency solutions deliver a dual advantage: immediate cost savings and structural emissions reductions.

Buildings alone account for nearly 40 percent of global energy use, making HVAC systems, insulation and energy management software critical areas of investment. With short payback periods – often under two years – energy efficiency solutions represent one of the fastest-growing and most financially attractive areas of climate investment.

Industrial energy efficiency is becoming a major investment theme. Technologies such as industrial process optimisation, heat pumps and waste heat recovery are improving operational efficiency in manufacturing, logistics and data centres.

Circular economy – reducing waste, increasing sustainability

The transition to a sustainable economy is also about redefining how we use materials. The circular economy focuses on waste reduction, increased recycling and the creation of more sustainable production systems.

Plastics, industrial waste and water scarcity present some of the biggest environmental challenges today. Companies involved in waste management, advanced recycling and water treatment solutions are seeing rising demand, particularly as corporate and government policies push for higher sustainability standards in packaging and industrial processes.

Beyond traditional waste management, innovation in alternative materials – such as bio-based plastics, low carbon cement and synthetic fuels – is opening new investment opportunities. These industries are still in the early stages, but they are set to grow as global supply chains adapt to increasing regulatory and consumer pressure.

Stock story: Clean Harbours (United States)

Clean Harbors is North America’s largest environmental services provider and a primary executor of the industrial circular economy. Through its Safety-Kleen subsidiary, the company operates a closed-loop infrastructure network that processes hundreds of millions of gallons of hazardous waste and used motor oil annually. Clean Harbors collects roughly one out of every five gallons of waste oil in North America, re-refining it into high-quality base oils and lubricants that require up to 85% less energy to produce than crude oil alternatives. The company’s recycling volumes reached 1.9 million metric tons in 2024, clearing its 2030 target years ahead of schedule^[4].

For investors, this asset-heavy infrastructure creates a significant competitive moat; the company leverages recurring service revenues from a diverse corporate customer base to drive compounding free cash flow, capitalising directly on rising corporate ESG mandates and supply chain reshoring trends.

Clean transport – beyond the EV

The rise of electric vehicles (EVs) is one of the most visible shifts in the climate transition, but the investment case for direct EV exposure is becoming more complex. A combination of oversupply, slowing demand and aggressive competition from China has put pressure on automakers, making investments less compelling in the short term.

However, the broader clean transport ecosystem remains an attractive investment theme. The supply chain behind EVs – including battery materials, charging infrastructure and grid integration technologies – continues to grow as electrification expands across passenger vehicles, trucks and public transport.

At the same time, low-carbon fuels, hydrogen, and sustainable aviation solutions are emerging as potential areas for future investment, particularly in industries where electrification is not yet viable.

Looking ahead: emerging drivers and innovations

Decarbonisation is accelerating, shifting climate investing beyond its first generation. Investors must look past standard renewables and efficiency to capture emerging opportunities driven by changing energy grid dynamics, new technology deployment, and shifting corporate sustainability mandates.

The rapid adoption of artificial intelligence is reshaping global energy consumption. AI workloads are significantly more power-intensive than traditional computing, and as businesses deploy AI at scale, data centre electricity demand is set to surge.

According to the International Energy Agency (IEA), total global electricity consumption from data centres is projected to roughly double by 2030, climbing from 485 terawatt-hours (TWh) to 950 TWh, accounting for approximately 3 percent of global electricity demand. Notably, power consumption from data centres specifically focused on AI is poised to triple, reaching 465 TWh by 2030 to nearly match the energy footprint of conventional data centres^[5].

AI is also playing a role in energy efficiency and grid optimisation. Machine learning models are being used to improve electricity demand forecasting, enhance battery storage performance and increase the efficiency of industrial and building energy systems. While AI is accelerating the need for clean power, it is also emerging as a key enabler of smarter energy use.

At the same time, heavy industry is undergoing a structural shift. New industrial technologies are emerging – from green steel and cement to low-carbon chemical production – driven by both regulation and corporate commitments to reduce supply chain emissions. While these areas are still in the early stages, they may represent the next major investment wave in the climate transition.

The transition to net zero will fluctuate rather than progress in a straight line, dictated by changing political landscapes, technological breakthroughs and shifting consumer behaviour. Yet the macro trajectory remains undeniable. Capital allocation from both public and private sectors is steadily flowing into decarbonisation, targeted directly at upgrading energy infrastructure, scaling efficiency tech and modernising resource management.

For forward-looking investors, the climate transition has transcended ethical necessity to become a structural economic theme defining the 21st century. This systemic shift is already reshaping global industries and is unlocking substantial value across energy, transport agriculture and finance. Driven by tightening regulatory mandates, shifting consumer preferences and institutional capital favouring sustainable assets, the financial momentum behind decarbonisation will continue to compound.

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References:
[1] https://zerotracker.net/
[2] BloombergNEF, Energy Transition Investment Trends 2025
[3] Wood Mackenzie, Global competitiveness of renewable LCOE continues to accelerate
[4] https://resource-recycling.com/plastics/2025/09/24/clean-harbors-hits-2030-recycling-goal-early/
[5] Key Questions on Energy and AI, International Energy Agency, April 2026

The information included in this article is provided for informational purposes only and is general advice only. It does not take into account an investor’s own objectives. The information contained in this article reflects, as of the date of publication, the current opinion of Munro Partners and is subject to change without notice. Sources for the material contained in this article are deemed reliable but cannot be guaranteed. We do not represent that this information is accurate and complete, and it should not be relied upon as such. Any opinions expressed in this material reflect our judgment at this date, are subject to change and should not be relied upon as the basis of your investment decisions. All reasonable care has been taken in producing the information set out in this article however subsequent changes in circumstances may occur at any time and may impact on the accuracy of the information. Neither Munro Partners, GSFM Pty Ltd, their related bodies nor associates gives any warranty nor makes any representation nor accepts responsibility for the accuracy or completeness of the information contained in this article.

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Damien McIntyre

Structural changes in global capital markets have reshaped the investment landscape, and investors are increasingly viewing private markets as a core portfolio allocation, according to GSFM CEO, Damien McIntyre.

But as private markets continue to mature, manager selection and portfolio construction will become even more important, McIntyre says.

“Private markets are no longer a niche allocation reserved for large institutions. More companies are choosing to stay private for longer, meaning investors relying solely on listed markets are accessing a smaller proportion of the global opportunity set.”

McIntyre says private markets now encompass a broad range of asset classes, including private equity, private credit, infrastructure, real estate and venture capital, providing investors with additional sources of diversification and return.

“By investing across all private markets, it is possible to build more resilient portfolios by accessing investments that are driven by different fundamentals to listed markets.”

McIntyre says it is not surprising that investor interest in private markets had accelerated in recent years.

“The market volatility experienced during 2022 reminded investors that traditional diversification doesn’t always work as expected,” he says.

“Public companies often operate under an intense 90-day reporting cycle,” he explains.

“Private market investments tend to be valued on underlying business fundamentals rather than daily market sentiment, reducing the impact of short-term noise and allowing managers to focus on long-term value creation.

“Private ownership allows businesses to focus on improving operations, investing for growth and creating value over several years rather than managing for the next quarterly result.

“The advantage is that management teams have ability to execute long-term strategies without the pressure of meeting quarterly earnings expectations that comes with listed markets.”

But McIntyre says manager selection is an important element of successful private market investing.

“The dispersion between top-performing and average managers in private markets is significantly wider than in listed markets, making manager selection a key driver of long-term returns.”

Rather than concentrating exposure in a single private asset class, McIntyre said the CI Global Private Markets Funds take an approach that combines private equity, private credit, infrastructure, real estate and venture capital within a diversified portfolio framework.

“The approach is to diversify across managers, asset classes, investment vintages and liquidity profiles,” he says.

“This provides investors with exposure to the breadth of opportunities available across private markets while helping manage portfolio risk.”

This is not to say that listed markets do not have a place.

“The role of private markets isn’t to replace listed investments but to complement them, improving diversification and potentially increasing long-term risk-adjusted returns.”

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Stephen Miller

As was pretty much expected, the Federal Reserve’s Federal Open Market Committee (FOMC) chose to keep the policy (federal funds) rate target unchanged at 3.5 – 3.75 per cent.

That was pretty much universally expected.

The Statement issued with the decision looked a little more “hawkish” than the market had anticipated.

Overall, the Committee looked to be relatively sanguine regarding economic activity growth and the labour market but noted that ‘inflation remains elevated relative to the Committee’s 2 per cent goal’ and that ‘the Committee will deliver price stability.’ There was no reference to the employment side of the Federal Reserve’s (Fed) mandate.

The phrasing of the Statement looked to be framed against a backdrop of a particular concern regarding the “stickiness” of inflation.

That was reflected in the projection materials. The central tendency of the Fed’s traditional inflation focus, the core private consumption expenditures (PCE) price index, is now thought to come in at 3.3 per cent for 2026 compared with 2.7 per cent in March.

Reflecting that the central tendency of the policy (federal funds) rate which was revised up to 3.8 per cent from 3.4 per cent in March. In terms of the “dot plot”, of the 19 participants, 9 saw at least one further increase in the policy rate (3 saw one increase, 5 saw two increases, and 1 saw three increases), 8 participants saw no change and 1 saw a reduction. Chair Warsh did not submit a plot.

In his press conference, Chair Warsh foreshadowed some potentially significant changes in current Fed decision-making processes. He announced the establishment of five taskforces that will cover key elements of the current Fed processes and practices. Those task forces will cover:

• Fed communication, including, presumably, the utility of the current “dot plot”.
• Management of the Fed’s balance sheet.
• How the Fed uses existing data and whether new information sources might provide more useful information.
• Productivity and jobs.
• Price / inflation frameworks, including drivers and the measurement of inflation.
• As mentioned, the markets have taken a view that the Statement is a relatively ‘hawkish’ one: equity markets are weaker as is the USD, bond yields mostly rose, particularly in the front-end.

The “hawkish” reaction is understandable.

For one thing half of the FOMC, via the “dot plot”, see a hike in the policy rate this year.

For another, the Statement and Warsh in his press conference, emphasised “price stability” with an implication that current inflation is too high. Chair Warsh in his press conference seemed to wish to reinforce the Fed’s credibility as an inflation fighter.

And finally, the Chair too exhibited no real disposition to do the President’s bidding, putting Fed independence on display.

However, my sense of the press conference was that Warsh was not necessarily signalling much about the future path of policy (not surprising given his disdain for forward guidance and, indeed, the utility of the “dot plot”).

In that context the bond market reaction may have reflected a market that was anticipating a more “dovish” disposition from the Fed Chair. In other words, bond market positioning was “the wrong way around”.

Indeed, on the “dot plot” Warsh noted in the press conference that when he reviewed the plots of his colleagues, he spotted they were in pencil, ‘the type with an eraser’ he said, suggesting that circumstances can shift quickly and that markets should be wary of their informational utility.

Moreover, the announcement of a series of taskforces and the implied changes in Fed processes suggests that the next Fed move is maybe more of an open question, as might be the ultimate impact on the bond market, particularly via the balance sheet taskforce.

RBA: stayin’ “live”

For what it is worth I think the RBA made the right call at Tuesday’s meeting.

With inflation showing signs of peaking, with the news flow from the Middle-East marginally less worrying, with the economy clearly slowing and growth narrowly based, with the labour market possibly at an inflection point and having raised the policy rate at each of the three previous meetings, a ‘pause and reflect’ made sense.

What also made sense was to reinforce ongoing concern regarding inflation.

That is despite the aforementioned better news from the Middle-East.

Jim Chalmers might have us believe that the Middle-East tensions and the ratcheting up of the price of oil is the primary driver of our current inflation challenge. That is partially true at the ‘headline’ level. But the reality is Australia has a structural homegrown inflation proclivity.

That much may be gleaned from the trimmed-mean inflation measure which excludes any strong upward impetus from oil prices.

Trimmed-mean consumer price index (CPI) inflation in Australia is currently running at 3.4 per cent. That means we’re currently competing with Norway for the highest developed country inflation crown. That is not a (developed) World Cup we should want to win!

By way of comparison, the trimmed-mean measure in the US is 2.9 per cent and that is with some tariff impact that doesn’t apply in the Australian context.

Treasurer Chalmers might seek to conceal that point in his public statements on interest rates and inflation, but the reality is much of the problem is our own doing.

That homegrown structural inflation proclivity reflects, inter alia, the interplay of regulatory creep in labour and goods markets that impose costs on businesses, part of which are passed on to consumers. The regulatory regime is also reflected in abject productivity growth making the task of inflation containment all the harder.

Ruchir Sharma in a recent opinion piece in the Financial Times noted that “populists of the left and right tend to push for lower interest rates but appear not to recognise that the people hurt most by the resulting inflation are their main constituents: the poor and middle class.”

That is something the Treasurer may wish to reflect on, not to mention his erstwhile mentor, Wayne Swan, who not long ago accused the RBA of “punching itself in the face”! Nice line, but Swan’s sentiment is not one that has aged well. Indeed, one might be tempted to reference glass houses. (Mea culpa: we’ve all been there!)

To be fair, the current state of affairs is not down to the current Federal Government. Rather it reflects a long-standing policy deficiency since the end of the Hawke-Keating and Howard-Costello eras. Governments (both State and Federal and Labor and Coalition) have long averted their eyes from addressing productivity enhancing policy measures. Just as importantly, little attention has been given to avoiding productivity diminishing measures attaching to (mostly well-intentioned but poorly thought out) regulatory oversight of labour and goods markets.

Sure, (to paraphrase the Prime Minister) people don’t sit around the kitchen table talking about low (or negative) productivity growth. But productivity remains central to enhancing standards of living not the least through mitigating inflation.

So, while looming cyclical fragility may have motivated the RBA’s ‘pause and reflect’, that Governor Bullock was clear that the policy rate might still need to be increased at a later date, reflects governments’ inability to support the RBA’s inflation battle with supportive structural policies.

In determining the course of the policy rate over coming months, the RBA faces considerable challenges having to negotiate a tricky (dare I say “narrow”) path between structural inflation factors and cyclical fragility.

Bank of England’ nothing to see here…yet

The Bank of England meets tonight.

In some ways the Bank of England calculus is similar to that faced by the RBA.

The economy is in a state of cyclical fragility, and the UK also has somewhat of a structural inflation proclivity. In many ways, the inattention to structural elements has been more egregious than that attaching to Australia and in that context it is surprising that inflation has at the margin been better behaved. That may be attributable to a deeper cyclical fragility.

In any case, a set of benign (relative to expectations) virtually seals the deal for no rate rise at this meeting.

Headline CPI in May was unchanged at 2.8 per cent (versus 3.0 per cent expected). Core inflation came in at 2.6 per cent, slightly up from 2.5 per cent in April, and a little below the 2.7 per cent expected. Services inflation remains somewhat problematic coming in at 3.7 per cent up from 3.2 per cent in April.

So, while inflation remains well north of the 2 per cent target, against a backdrop of more positive news from the Middle-East this week, the key inflation measures seem sufficient enough to forestall any potential increase in the policy rate at tonight’s meeting. That said, markets may continue to romance the notion of a policy rate rise given services inflation and the fact that the current measures are well north of the target.

By Stephen Miller, investment strategist

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Stephen Miller

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Integrating trend following into an investment strategy serves as a structural mechanism for portfolio resilience rather than a short-term market play.

Trend following strategies aim to generate returns by capturing sustained price movements across a diverse range of asset classes. Unlike traditional investment approaches that rely on valuation or forecasting, trend following is fundamentally reactive. It is built on the premise that asset prices exhibit momentum; that is, rising prices tend to keep rising, and falling prices tend to keep falling, for periods longer than pure randomness would suggest.

Trend following does not seek to forecast markets or prices. Instead, it identifies the direction of an established trend and positions the portfolio accordingly:

• In prolonged bull markets a trend following strategy takes long positions to profit from continued upward momentum
• In extended bear markets a trend following strategy takes short positions to capitalise on continuing downward price movements, providing a source of portfolio diversification and crisis alpha

While market selection, position sizing and risk controls dictate the intricacies of execution, the core objective remains constant: identify the direction of a market trend and assess its potential duration.

Traditional trend following markets

At face value, trend following is a simple strategy. Buy something that is going up; and sell something that is going down. However, Finance 101 says that trends should not exist; markets are efficient and information is instantaneously reflected in prices. This ignores the fact that decisions lag news flow, that economic cycles play out over years and that humans get emotional and sometimes make irrational choices.

Trend following strategies eliminates the factors that can impede good decision making. Instead, it identifies and captures trends across a range of sectors: stocks, bonds, currencies, agricultural investments, commodities, interest rates, energy and utilities and credit. Strategies typically invest across hundreds of markets and sectors at any one time.

Traditional trend-following markets are the large, exchange‑traded futures and forwards: equity indices (for example, S&P 500), government bonds (US Treasuries), major foreign exchange (USD/GBP) and core commodities (such as gold, copper or crude oil). They are highly liquid, transparent and operationally simple, with deep capacity, tight bid/ask spreads and long data histories, making them efficient to access at scale. Trend following across these markets offers the combined attractiveness of a positive expected long-run Sharpe ratio and positive expected crisis Sharpe ratio^[1]. As a reminder, the Sharpe ratio is a metric for risk-adjusted return, which shows excess return per unit of risk.

Traditional markets can also proxy the key macro risk factors present in the global economy. For example, growth, inflation, monetary policy and world trade movements can all be captured using a combination of these liquid markets.

Figure one shows market combinations that may be sensitive to moves in each of these macro factors. These are illustrative examples – and trend following will capture many more effects – but in big macro events such as an equity collapse, these core markets typically feel the largest impact.

Since trend-following models can be both long and short, traditional markets tend to exhibit the strongest defensiveness (higher expected crisis Sharpe ratio) during broad, cross‑asset sell‑offs, providing potential ‘crisis alpha’ to multi‑asset portfolios. In stressed environments, movements in the largest macro risk factors are amplified, generating more opportunities for trend to position appropriately (long or short) and to benefit. However, the influence of these macro factors is not constant. They can go through periods of being more or less significant in the context of the global economy.

Given the unpredictable nature of price trends, trend following strategies often broaden their scope to encompass both traditional and alternative markets. Alternative markets offer exposure to idiosyncratic, market-specific risk factors that drive diversifying price trends.

Alternative markets come in many forms and historically, Man Group’s research demonstrates the application of trend following models to this diversified set of markets has delivered higher absolute returns. Importantly, classifying a market as alternative doesn’t equate to it being inherently less liquid.

Synthetic markets – which allow trend followers to trade themes in markets versus the markets themselves – can also provide further diversification from traditional markets. A well-documented example is equity styles; constructed by cross-sectionally ranking cash equities based on fundamental metrics representative of a particular investment style. Trend following applied to equity styles not only offers a more robust way to monetise equity styles but is also highly diversifying to traditional index-based trend following.

Why invest in trend following strategies?

There are five key reasons to consider a trend following strategy for clients:

1. Diversification

Diversification is the primary tool for increasing portfolios’ Sharpe ratio. Because trend following strategies trade across a broad spectrum of uncorrelated global assets, they provide a reliable mechanism for dampening volatility and enhancing portfolio diversification.

Many of traditional assets have similar underlying return drivers: stocks, fixed income, real estate and private equity all rely on a growing economy for price appreciation. When this driver breaks down due to geopolitical uncertainty and market events, these assets can sell off together. Diversification often fails when investors need it most.

This is where trend following comes in. Unlike traditional assets, trend following does not rely on economic growth to generate returns and has historically been uncorrelated to equities, bonds, real estate and other asset classes. More importantly, it has tended to perform best precisely when other asset classes struggle, offering a valuable counterbalance when stocks are meaningfully down^[2].

Figure two summarises this defensive property, with trend historically delivering in the worst periods for equities, while the performance of bonds and multi-strategy hedge funds are mixed.

2. Low correlation to traditional assets

In recent years, the traditional negative correlation between equities and bonds has broken down. Historically, bonds acted as a reliable cushion during stock market downturns. However, recent periods of high inflation and aggressive central bank interest rate hikes have caused both asset classes to move in the same direction, pushing their correlation into positive territory.

This shift has impacted the traditional 60/40 portfolio, most notably in 2022 when both equities and fixed income suffered simultaneous, double-digit losses. Because bonds can no longer be guaranteed to offset equity risk, financial advisers increasingly look beyond the 60/40 model, incorporating alternative strategies to achieve true portfolio diversification. Trend following strategies are a good example because they are structurally agnostic to asset class correlations and can take short positions.

Furthermore, because these strategies trade across dozens of uncorrelated global sectors, they provide exposure to return drivers that are completely absent from a standard equity and bond portfolio.

3. Risk/return and ‘crisis alpha’

Integrating trend following into a portfolio of traditional assets generally improves performance consistency while reducing volatility and drawdowns. Because these strategies can profit from downward price trends, they offer critical capital preservation when traditional markets decline.

‘Crisis alpha’ is a term that describes the structural ability of trend-following strategies to generate positive absolute returns during periods of sustained equity market distress and economic shocks. The term was formalised by authors Greyserman & Kaminski who used centuries of historical market data to demonstrate that because trend following systems are automated, rules-based and capable of taking short positions, they reliably provide a unique form of ‘insurance’ or alpha exactly when traditional 60/40 portfolios suffer major drawdowns^[3].

4. Liquidity

Trend following strategies invest across hundreds of liquid markets and usually offer investors daily liquidity; trend following is much less likely to get ‘locked up’ in the event of a market crisis.

5. Manage investor behaviour

By removing human emotion and biases through an entirely systematic, rules-based process, trend following offers a powerful behavioural benefit. This disciplined framework prevents clients from panic-selling or chasing overvalued assets during market extremes.

Equity and trend make good friends

Most advisers have experienced first-hand the frustration of seeing parts of a portfolio designed to provide ballast not always hold up as markets turn volatile. A historic case in point was the 2022 sell-off, when stocks and bonds declined in tandem. Even during the more recent shock of the war in the Middle East, stocks initially slumped and yields shot up.

As outlined earlier in this article, trend following has historically displayed a diversifying edge in times of market stress (for both equity and bond crises), solidifying its role as an alpha component which is not only diversifying but also may provide portfolio insurance properties.

It works for three reasons. First, as noted earlier, human behaviour tends to be predictable. Investors consistently underreact to new information and overreact to fear, creating trends that persist longer than efficient-market theory (the idea that asset prices already reflect all available information, so you can’t ‘beat’ the market) would suggest. Second, economic cycles can potentially play out over years, driving sustained directional moves in interest rates, currencies, commodities and other drivers. Third, decisions lag news flow. Information doesn’t get priced instantaneously; it gets digested, debated and acted upon gradually.

The data shows trend following to be a complement to equities (figure four). Going back to 2000, comparing US equities (S&P 500) and trend following over 12-month periods, Man Group found trend following is additive most of the time (almost 95%) to US equities.

In 46% of 12-month periods, both trend and equities are positive while in 50% of 12-month periods, one component helps offset negative returns from the other. Only 4% of 12-month periods result in both components delivering a negative return. Finally, in about a quarter of the observations, when US equities are negative, trend following generated a positive return 82% of the time.

Trend following exhibits convexity: its returns grow more positive the more asset prices move significantly in either direction. During the dot-com crash, the Global Financial Crisis and the 2022 inflationary episode, trend following delivered competitive positive returns while traditional assets suffered. This ‘crisis alpha’ property is a key attribute which can differentiate trend following from other alternatives that tend to underperform in the left tail of equity markets. When markets move a lot, either up or down, trend following strategies tend to do well.

When considering a trend following strategy for your clients, there are some important questions to ask:

• Is the strategy true to label and has it remained so over time?
• Has the strategy delivered crisis alpha in times of market downturns?
• Is the strategy performing as expected during inflationary periods?
• Is the strategy liquid and transparent?
• Does the strategy harness the latest technology – machine learning, artificial intelligence, platforms for swift execution of trades?

Integrating trend following into an investment strategy serves as a structural mechanism for portfolio resilience rather than a short-term market play. By functioning as a form of portfolio insurance that generates positive expected returns over time, the strategy provides downside protection as a byproduct of growth, rather than as a net cost like traditional put options. Maintaining a long-term strategic commitment allows the strategy to effectively stabilise a portfolio during major market dislocations.

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Notes:
[1] A Trend Following Deep Dive: The Optimal Market Mix for a Trend Follower, Man Group, January 2026
[2] Ibid.
[3] Trend Following with Managed Futures: The Search for Crisis Alpha, Greyserman & Kaminski, 2014

Important information: The information included in this article is provided for informational purposes only and is general advice only. It does not take into account an investor’s own objectives. The information contained in this article reflects, as of the date of publication, the current opinion of Man Group plc and is subject to change without notice. Sources for the material contained in this article are deemed reliable but cannot be guaranteed. We do not represent that this information is accurate and complete, and it should not be relied upon as such. Any opinions expressed in this material reflect our judgment at this date, are subject to change and should not be relied upon as the basis of your investment decisions. All reasonable care has been taken in producing the information set out in this article however subsequent changes in circumstances may occur at any time and may impact on the accuracy of the information. Neither Man Group plc, GSFM Pty Ltd, their related bodies nor associates gives any warranty nor makes any representation nor accepts responsibility for the accuracy or completeness of the information contained in this article. Past performance does not guarantee future results.

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Damien McIntyre

A volatile start to 2026 has masked some solid fundamentals in European markets, but the valuation gap that exists between European small caps relative to both history and their large cap peers makes them an attractive hunting ground for investors, says GSFM CEO Damien McIntyre. 

The US/ Iran war and the macro uncertainty this has created has delayed European recovery, but not derailed it, McIntyre says.

“There are good opportunities when investors take the right approach in the right sectors, particularly where trade buyers and private equity firms continue to show interest in merger and acquisition activity.” 

McIntyre says when it comes to investing in European small caps investors should prioritise quality companies with significant growth potential. 

“By focusing on sectors where there are favourable structural trends, such as healthcare, food and beverage, and defence and technology, investors are gaining exposure to companies that display resilient business models, regardless of the broader macro landscape,” he says.  

McIntyre says one of the keys to success in European small caps is an “active engagement” approach with the companies held in a portfolio.

“The world is in a state of flux as geopolitical risks escalate around the globe. In this context, investors can benefit from adopting a value-driven strategy and identifying compelling opportunities at the company level. 

“This has long been the tactic of private equity investors – they find and then invest in promising companies for the long haul. And it’s an approach that can also serve investors in global small cap equities as well. Adopting an active ownership approach of “friendly activism” can reap strong benefits over the long term.” 

McIntyre says this is the approach taken by Alantra EQMC. “By making a significant investment in a growing small cap company, up to around 25 per cent, Alantra has the power to initiate and encourage real change. 

“Small cap companies offer investors the opportunity to get in at ground level and benefit from the growth that happens as companies mature. Small caps are also generally an under-researched sector of the market, with most analysts focussing on larger cap companies. But this creates real potential for those analysts willing to do the research.

“An important consideration, however, is where the company you are investing in is domiciled. Not every jurisdiction offers the regulatory and legislative certainty of Europe.  

“A focus on European listed companies – not as a European play but rather investing in those companies that have a global growth exposure to other parts of the world – can be a strategy that adds good value. 

“There are some European small cap companies that are great global businesses that are leaders in their niches. They are ripe for growth, and with the right direction, can also become a target for mergers and acquisitions. 

“Active ownership approach from a fund manager can help accelerate a small cap company’s path to becoming a mid-cap company, thus creating shareholder value.” 

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Damien McIntyre

GSFM, with CI Global Asset Management (CI GAM) as investment manager of the underlying funds, has launched the CI Global Private Markets Growth Fund and CI Global Private Markets Income Fund in Australia, which respectively invest in multi-manager, open-architecture funds-of-funds seeded by, and managed by CI GAM. The strategies are available to institutional, wholesale and family office investors.

CI GAM is one of Canada’s largest investment management firms and an affiliate of GSFM. Founded in 1965, it offers a comprehensive selection of traditional and alternative strategies to individual and institutional investors.

GSFM CEO Damien McIntyre says the interest in private markets is growing among Australian investors, but that not all private market funds are created equal.

“The underlying funds’ size provides a significant competitive advantage. This immediately gets the GSFM funds to scale, providing access to a range of superior opportunities and attractive pricing that is not available to smaller funds.

“With as little as a $50,000 investment in a CI Private Markets Fund, Australian investors can access a curated selection of leading private markets funds across all five major private market sectors, with active portfolio management and disciplined rebalancing. This provides immediate diversification by manager, vintage and geography – an outcome that is incredibly hard to achieve if you don’t have the scale to access and the ability to evaluate the world’s top-tier managers,” says McIntyre.

Marc-André Lewis, chief investment officer at CI GAM, says these funds have removed the traditional barriers to private market investments, such as long lockups and high minimum investments requirements.

“The CI Global Private Market Funds offer Australian investors the ability to not only invest outside of public markets, but into a multi-manager and multi-sector portfolio of private assets to better diversify their private market allocation.

“Private markets are expected to grow to around US$30 trillion by 2029, making this asset class hard to ignore for investors. GSFM’s clients are showing heighted interest in private market investments, given this expected growth from the asset class and the need to diversify investments outside of public markets.

“Both strategies have a strong track record. They are fund-of-funds solutions that provide exposure to a diversified set of private market funds managed by leading and emerging private market managers,” says Lewis.

McIntyre adds: “The CI Global Private Markets Funds are supported by a team of dedicated and experienced private market specialists that focus on manager sourcing, due diligence and ongoing manager oversight.

“Until now, Australian investors have struggled to implement the same asset allocation discipline in their private investing as they do on the listed side. Everyone believes in diversification but it’s difficult to get access to the best managers in the world, let alone understand how to combine them efficiently.

“These funds now give Australian investors the opportunity to diversify properly across the entire private markets universe – not just pick a few well-known brands and hope they all fit together,” says McIntyre.

The CI Global Private Markets Growth Fund is designed to provide long-term capital growth. It primarily invests in a globally diversified portfolio of private equity, venture capital, private credit, private infrastructure, private real estate and other private market funds.

The CI Global Private Markets Income Fund is designed to provide similar returns to public markets with far less volatility. It primarily invests in income-producing assets including private credit, private equity, private real estate, private infrastructure and royalty funds.

Ratings from Lonsec and Genium Investment Partners will be made available later in Q2.

The post GSFM launches CI Global Private Markets Funds in Australia appeared first on AdviserVoice.

Stephen Miller

The onset of the Iranian crisis has unleashed a litany of dire prognostications surrounding the likely course of the price of financial assets.

Yet US equity markets are close to record highs.

What gives?

The favoured explanation among the commentariat is that markets are complacent – perhaps even “irrationally exuberant” – and a day of reckoning is nigh.

Viewed through a macroeconomic prism that explanation has some appeal.

Even if hostilities in the Middle East are about to be dialled down it is difficult to see oil prices return to their pre-conflict levels. Re-engineering of energy supply chains, a greater tendency to “just-in-case” rather than “just-in-time” oil inventory management and an ongoing risk premium attaching to the price of oil may see an extended period of elevated oil prices.

Inflation was “sticky” prior to the surge in oil prices. Furthermore, structural global inflation suppressants that had operated since the late 1980s up until the onset of the pandemic are in clear abeyance (think declining skilled migration flows from the former Eastern Bloc, China and India; the retreat of globalisation of goods markets; increasing labour and goods market regulation; and declining baby boomer workforce participation).

Those waning structural inflation suppressants and now the surge in oil prices have meant that central banks, including the US Federal Reserve, are required to be more attuned to upside inflation risks than they may have been in the three or so decades leading up to the pandemic. It has also meant that an anticipated decline in bond yields has not eventuated.

There is a view that current bond yields are “elevated” by some historical standard.

That notion, however, doesn’t bear scrutiny.

Between 2008 and 2022 (the period covering from the GFC to the pandemic) US 10-year bond yields averaged around 2.4 per cent.

That was a period of extraordinarily low yields by historical standards. Yet it is etched in the minds of a number of market participants as some benchmark of ‘normality’.

Between 2000 and 2007 the average US 10-year bond yield was around 4.7 per cent. That is a way north of where the current US 10-year bond yield is trading.

The latter is arguably a better benchmark (albeit one that is far from perfect).

(Interestingly the average through the 1960s was also around 4.7 per cent.)

In other words, current bond yields are not “high” by historical standards.

The corollary of that notion is that in the current period of relatively strong inflationary tailwinds, the forces preventing any substantial decline in global and US bond yields are formidable.

That would imply ongoing headwinds to economic activity growth and equity market performance.

So why are US equity markets at close to record highs?

For one thing the macro data is yet to show any substantial slowing in economic activity growth.

However, it is also yet to reflect fully the fallout from the Iranian conflict.

But more importantly, the answer is that equity markets reflect a whole lot more than the macroeconomy.

Global markets are currently wrestling with huge economic structural shifts that are arguably more important than conventional macro metrics in driving equity market performance.

At the forefront of these changes is the rapidity of technological advances. The incorporation of AI into economic life will likely see massive productivity growth that can mitigate any adverse macro influences.

Moreover, there is an element of US exceptionalism that attaches to AI and consequent productivity growth.

The US is at the epicentre of AI developments and there are signs that it is already reaping outsized rewards from that circumstance.

US productivity growth has averaged 1.7 per cent per annum since the end of 2021. The equivalent Australian figure is -1 per cent. To put it more starkly, US productivity has grown by almost 7 per cent in that time, Australia’s productivity has fallen by 4 per cent. (Australia’s experience is reflected more or less in the rest of the developed world outside the US).

That might in part explain why US equity markets are at record highs (despite an adverse prospective macro environment) and that is to some extent dragging the laggards with it.

An important investment dimension arising from the forgoing is that it is likely to result in a greater dispersion of individual stock returns. That being the case, the returns from “good” active management are accordingly higher compared with passively managed index funds.

So yes, the macro environment is a challenging one and likely to stay that way as bond yields remain at current levels or go higher.

And that should make investors wary.

But equity markets (particularly the US) can benefit from harnessing important structural mega-trends that can propel ongoing strong equity performance despite that adverse macro environment.

The RBA: where to next?

I had canvassed the possibility that the RBA might ‘pause and reflect’ at this week’s RBA Monetary Policy Board (MPB) meeting.

That was not intended as a prescriptive statement but more as a descriptive sense of what the RBA may deliver under the new arrangements that accompanied the An RBA Fit for the Future review initiated by Treasurer Chalmers.

That didn’t eventuate, but I think the RBA Monetary Policy Board made the right call.

Inflation was already both too high and broad-based ahead of the Iran shock, even if the March quarter consumer price index (CPI) outcome was slightly less than feared.

And despite that ‘better than feared’ March quarter outcome, newly issued RBA forecasts show a path for trimmed-mean inflation higher than forecast back in February. For this calendar year trimmed-mean inflation is expected to come in at 3.5 per cent (compared with 3.2 per cent forecast back in February).

For what it is worth, I think on balance the current environment is one that argues for further insurance against inflation expectations becoming unanchored and that should see a further tightening at some stage this year.

Both the Federal and State governments appear to reticent to abandon politically expedient but ultimately counter-productive spending measures. In large part the end result is higher policy rates.

This is also the product of an almost egregious inattention of past and present governments (both State and Federal and Labor and Coalition) to policies that might ease structural constraints on inflation. In most instances this involves “unintended consequences” of regulatory creep in labour and goods markets.

The forgoing is emblematic of a particular inflation proclivity in the Australian economy.

That is on top of structural global inflation suppressants that had operated from the late 1980s up until the onset of the pandemic now being in clear abeyance.

The forgoing suggest that the RBA might still need to reload later in the year.

Coming up: US non-farm payrolls is unlikely to move the dial for the Fed despite the Warsh ascendancy

The last meeting of the US Federal Reserve (Fed) appeared to indicate the Fed was some way from easing policy.

At this juncture it is difficult to see that changing even as Kevin Warsh assumes the Chair’s position, presumably later this month.

Warsh, conjectures that disinflation in the US will follow from tremendous (largely AI motivated) investment. In Warsh’s view that investment has wrought a productivity dividend that (other things equal) has raised the US economy’s ‘speed limit’. In other words, the US economy can grow at faster rate before igniting inflationary pressures.

That is a credible – if eminently debatable – position.

And there have been glimpses of that phenomenon in some of the less “noisy” inflation measures.

For example, the Dallas Fed ‘s trimmed mean core private consumption expenditures (PCE) measure was 2.4 per cent in March, minisculely above the February reading which was the lowest since August 2021, and comes despite broad-based price pressures emanating from the Trump tariff agenda.

That said, progress toward the 2 per cent target, even on the Dallas Fed measure, has been excruciatingly slow.

Judging by their commentary most members of the Fed’s rate setting Federal Open Market Committee (FOMC) remain concerned about the potential for the recent oil price surge to unanchor inflation expectations.

And it remains the case that the Fed’s favoured inflation measure, the core private consumption expenditures (PCE) price index, at 3.2 per cent in March, is well above the target 2 per cent and was the highest read since November 2023.

So absent some sharp deterioration in the labour market the incoming Fed Chair might be hard-pressed to convince his fellow FOMC members of the case for cutting the policy rate.

Friday of course brings the April non-farm payrolls report.

Indications are that the labour market remains in satisfactory condition.

The ADP April payrolls report was more robust than anticipated showing a gain of 109k (versus the 85k increase expected). The ADP report is sometimes dismissed (too easily in my view) because of its poor record in foreshadowing month-to-month movements in the Bureau of Labor Statistics payrolls measure. However, it is just as good a measure of the state of the labour market as the payrolls report.

The March Job Openings and Labor Turnover survey (JOLTs) report saw openings remain at a satisfactory 6.9m.

The April Institute of Supply Management (ISM) manufacturing index (PMI) released on Monday paints a reasonably satisfactory picture of the US manufacturing sector: the index coming in unchanged at 52.7. The employment component slipped to 46.4, which is a little on the soft side and consistent with some manufacturing job losses (50.0 is the neutral point between expansion and contraction). The prices component meanwhile increased to an elevated 84.6 (ringing clear alarm bells around accelerating inflation in the sector).

The April ISM services index also paints a satisfactory picture with the overall index remaining consistent with expansion at 53.6. The employment component improved a little to 48.0 from 45.2, although it remains consistent with some modest cooling in the non-manufacturing labour market. The price component remains elevated at 70.7 (again consistent with worrying acceleration in inflation).

A consensus outcome for payrolls of a circa 180k increase in employment and an unemployment rate unchanged at 4.3 per cent with average earnings growth of 3.5 per cent is unlikely to move the dial for remaining Fed members.

If Kevin Warsh does in fact wish to cut the policy rate, he has his work cut out.

By Stephen Miller, investment strategist

The post Are markets ‘complacent’? appeared first on AdviserVoice.

Asian equities can play a role in investor portfolios and this is becoming increasingly important in the current environment.

The investment playbook has long been anchored by the security of the Australian sharemarket, notably the ASX200. Investors have leaned on the ‘big four’ banks for yield and the mining giants for growth, supplemented by a tilt toward US mega-cap technology. However, with the ASX200 trading at record highs and forward P/E ratios stretched well above historical norms, the risks that a home bias can have on portfolios are acute.

Domestic inflation remains stickier than anticipated. This has forced the RBA into a hawkish stance that challenges some domestic equity valuations. However, our northern neighbours have entered a structural renaissance. While Asia has long been considered a ‘satellite’ allocation for somewhat speculative growth, in 2026 it has become an engine for growth, diversification and income.

These domestic issues take place while geopolitical events continue to reshape global capital markets. The extreme concentration in US assets, driven by fiscal policies that have now propelled US national debt close to a US$39 trillion^[1] milestone, is showing clear signs of peaking. At the same time, the US dollar is navigating a period of structural softening; its long-standing safe haven premium is being eroded by the gravity of the country’s debt burden and a global trend toward currency diversification.

As well as these broad global thematics, there are other, more granular reasons to consider Asian equities for your clients. Each of these will be explored in further detail in this article.

1. The ASX duopoly – the concentration of the Australian market means that many client portfolios are over-exposed to Financials and Materials. Asia offers diversity via direct exposure to a range of growth sectors, many of which are not accessible through the domestic market. This includes semiconductors, industrials and AI.
2. The income evolution – traditionally, Australian investors looked to Asia for capital growth and stayed home for dividends. However, a growing number of Asian companies are delivering record share buybacks and yields that rival our domestic income staples (such as banks), but with far superior growth runways.
3. A structural portfolio shift – large industry funds and other institutional investors are pivoting their private and public equity mandates toward Asia. AustralianSuper CEO Paul Schroder recently noted the fund is ‘just at the beginning’ of its Asian private equity expansion (Asia Asset Management, February 2026), while Aware Super’s $6bn digital infrastructure push has increasingly focused on Asian markets (i3 Insights, March 2026). This institutional appetite signals a shift from treating Asia as a volatile satellite to a core portfolio engine.

The case for Asia

For Australian investors, the case for Asia in 2026 has become stronger, driven by a fundamental shift in how global capital is allocated. As domestic valuations on the ASX face headwinds from a mature credit cycle and geopolitical factors, the Asian region offers a multi-speed growth profile that provides both a valuation cushion and exposure to sectors unavailable on the local exchange.

1. Diversifying beyond the banks and miners

For many Australian investors, diversification can be challenging to achieve in the domestic sharemarket. The S&P/ASX200 remains one of the most concentrated developed indices in the world, with 54.4 percent of the index weight tethered to just two sectors: Financials (29.5 percent) and Materials (24.9 percent)^[2]. While this has historically provided a reliable stream of franked dividends, it can leave portfolios exposed to a ‘two-engine’ economy.

The Australian market is somewhat sparse when it comes to the sectors defining investment trends and economic power in the late 2020s. Asia, however, provides the structural bridge to these missing industries, such as:

Semiconductors – while the ASX has virtually no semiconductor footprint, Asia houses the entire global supply chain. Investing in the region provides direct exposure to several companies that are the gatekeepers of global computing power, from high-end logic chips to the high-bandwidth memory (HBM) required for generative AI.

The new industrial revolution – Australia’s industrial sector is largely comprised of transport and logistics firms. In contrast, Asia offers exposure to advanced robotics, precision manufacturing and automation. As China’s 15th Five-Year Plan prioritises new productive forces, the region is seeing a surge in industrial tech firms that are automating the world’s factories. This is a sector that does not exist at scale in the domestic market.

Artificial intelligence – Asia represents the Applied AI frontier, the practical integration of artificial intelligence into tangible hardware and industrial processes to solve real-world problems. Such businesses are focused on the commercialisation of the technology and converting AI capability into immediate, scalable revenue.

A strong rationale for the Australian investor is the shift from raw materials to refined technology. Many investors’ portfolios are dependent on the price of raw lithium or nickel; an allocation to Asia also provides exposure to those companies that turn those minerals into EV batteries, energy storage systems and so much more.

2. The income evolution

The traditional home bias of Australian investors has long been justified by a single, powerful incentive: franked dividends. This has been particularly important for retirees. Historically, Asia has been considered the investment destination for capital growth, while the domestic market remained the engine for yield.

However, GSFM’s investment partner Eastspring Investments believes dividend yield has increasingly become a foundational pillar of long‑term wealth creation in Asia. A decomposition of returns for the MSCI Asia Pacific ex‑Japan Index from March 2006 to February 2026 reveals three distinct drivers: earnings growth, valuation changes through multiple expansion or contraction and dividends (figure one).

While valuation multiples can be highly volatile, swinging sharply between expansion and contraction and acting as both a tailwind and a headwind at different points in the cycle, earnings growth has been comparatively more consistent but remains subject to cyclical variation. Meanwhile the dividend component has delivered the most reliable and steadily compounding contribution to total returns over time.

Income from Asian equities is also being driven by a wave of corporate governance reforms that are forcing companies to prioritise shareholder returns over cash hoarding.

While the headline yields of Australian banks often hover between 5-6 percent, they frequently consume 75-90 percent of corporate earnings to maintain those payments. In contrast, several key Asian segments are now delivering similar total returns with payout ratios closer to 30-40 percent.

This shift is most visible in markets such as South Korea and Taiwan, where programs have incentivised boards to aggressively deploy capital back to investors. In 2025 and 2026, share buyback activity in these regions reached record highs, effectively creating a ‘synthetic yield’ that complements traditional dividends. Unlike the Australian banking sector, which is currently operating in a mature, low-growth credit environment, these high yield Asian companies are anchored in high-growth industries such as advanced semiconductors and regional logistics.

Case study: South Korea’s ‘Value-up’ Program^[3]

South Korea’s corporate Value-up Program, which reached full maturity in early 2026, has seen major conglomerates move toward a 30/30/30 model: 30 percent payout, 30 percent buybacks and 30% reinvestment.

From a yield comparison perspective, top-tier Korean financials such as KB Financial Group are currently yielding approximately 5.2 percent. This is being achieved with a payout ratio of roughly 35 percent.

3. A structural portfolio shift

The shift toward Asia by Australia’s major industry super funds is significant. Historically, Australian industry funds treated Asian markets as high-beta satellites, allocations designed to provide a small growth kicker at the expense of significant volatility.

However, the sheer scale of the Australian retirement pool, now exceeding $4.5 trillion^[4], has made the ASX a somewhat crowded trade. For Australia’s large institutional investors, Asia has become a necessary frontier for absorbing large-scale capital in sectors that offer structural longevity.

The announcement in late 2025 of a ‘strategic pivot’ into Southeast Asia was aimed at mobilising superannuation capital into the region’s high-growth sectors. The pivot was being formalised through a partnership between the Australian government and IFM Investors, specifically to target long-term opportunities in manufacturing, the energy transition and infrastructure^[5].

When institutional investors move, they create the liquidity and corporate engagement that eventually lowers the risk profile for individual retail investors. This institutionalisation provides three key benefits for client portfolios:

• The presence of large institutional funds in these markets signals that the regulatory and governance frameworks have reached institutional grade.
• Through professional managers, clients can now tap into both private and public markets in Asia, some of which were previously inaccessible.
• As the benchmark for a ‘balanced’ super fund shifts toward a higher Asian weighting, it may become easier to present a positive investment case to your clients.

The China story remains intact

GSFM’s investment partner Man Group believes the Gulf conflict indicates that the world’s second-largest economy’s push for self-reliance appears to be paying off.  China’s first quarter gross domestic product growth recently came in at 5 percent, beating expectations and accelerating from 4.5 percent in the final quarter of last year. This was mostly driven by better-than-expected exports and a rebound in infrastructure spending.

China is probably the least impacted economy in Asia from the Gulf conflict. Its reliance on oil as a share of the energy mix is considerably lower than most countries (figure two), largely because of years of investment in renewables, making its oil stockpiles go a lot further.

The structural build out continues

Meanwhile, the structural build-out continues to gather pace. China is no longer simply catching up with the US in AI. In areas like AI inference – the process of using a trained machine learning model to make predictions, decisions, or generate outputs from new, unseen data – it is beginning to overtake.

What makes this particularly significant is the phase that AI is now entering. As the technology moves from software into the physical world through robotics and humanoids, China’s manufacturing dominance becomes a decisive advantage. This is where decades of industrial capacity meet cutting-edge innovation, and it is difficult to see how competitors can close that gap quickly.

The innovation story is also broadening into biotech. The government recently signalled its willingness to reform China’s drug pricing system, recognising that ‘high level innovative drugs with a high degree of innovation and significant clinical value’ should command prices consistent with their higher investment and risk. In Man Group’s view, this likely drives further upside to an already much improved biotech sector in China.

Easing headwinds

Several persistent drags on sentiment with respect to China are also stabilising. In the property market there has been slowing deterioration, as well as some early signs of stabilisation and improvement in both sales volumes and pricing.

On deflation, higher oil prices have driven the Producer Price Index back into positive territory for the first time since September 2022, ending a 41-month streak of deflation. Consumer prices rose one percent year-on-year in March but remain well below the government’s two percent target, and core inflation (excluding food and energy) was 1.1 percent

The export question

The open question is whether China can maintain its export momentum as global growth likely slows under the weight of a more prolonged increase in energy costs. China may stand to benefit as competitors feel the drag from the energy shock and a global desire to reduce reliance on hydrocarbons sourced from the Middle East drives demand for renewables. China manufactures 92 percent of the world’s solar modules and 82 percent of wind turbines.

If global exports do eventually slow, that may become the catalyst for an internal consumption pivot. Man Group believes China has delayed consumer-related policy reform partly because the strength of its broader export volumes has offered a credible backstop to sustained GDP growth, and partly because the focus has shifted to ensuring self-sufficiency against a backdrop of increasing geopolitical fragmentation. A prolonged decline in external demand could be what finally forces China’s hand.

Asian shares are shifting from a high-risk growth satellite allocation to a core part of a well-balanced portfolio. For Australian investors, this is one of the biggest opportunities in years. By moving beyond the local focus on banks and mining stocks, and investing in areas such as AI, semiconductors and other advanced industries, you can reduce the home bias from clients’ portfolios and improve long-term outcomes. Asia is no longer just an option; it’s becoming a key foundation for building a strong, future-ready portfolio.

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Notes:
[1] https://www.us-debt-clock.com/, accessed 27 April 2026, debt figure $38.8 trillion
[2] Spglobal.com, S&P/ASX200 Fact Sheet, 31 March 2026
[3] Korea Exchange (KRX) Market Data, 2025 Annual Shareholder Return Report, January 2026
[4] ASFA Super Statistics, 30 September 2025
[5] Super funds to drive south-east Asia investment growth, Super Review, 28 October 2025

The information included in this article is provided for informational purposes only and is general advice only. It does not take into account an investor’s own objectives. The information contained in this article reflects, as of the date of publication, the current opinion of GSFM, Eastspring Investments and Man Group, and is subject to change without notice. Sources for the material contained in this article are deemed reliable but cannot be guaranteed. We do not represent that this information is accurate and complete, and it should not be relied upon as such. Any opinions expressed in this material reflect our judgment at this date, are subject to change and should not be relied upon as the basis of your investment decisions. All reasonable care has been taken in producing the information set out in this article however subsequent changes in circumstances may occur at any time and may impact on the accuracy of the information. None of Eastspring Investments, Man Group or GSFM Pty Ltd, their related bodies nor associates give any warranty nor makes any representation nor accepts responsibility for the accuracy or completeness of the information contained in this article.

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