June 2026

Global shares ended the quarter with their largest percentage increase since 2020. Equities were driven in large part by AI-connected tech shares though experienced volatility on developments in the conflict in the Middle East. Global growth was better than feared during the quarter; US activity remained resilient while Asian factory activity was up on AI-linked export demand. The MSCI ACWI Index returned 13.62% in unhedged terms; in hedged AUD terms, the index returned 14.93%. The MSCI World Index Net returned 12.46% in unhedged terms; in hedged AUD terms the index returned 13.79%.

Emerging markets connected with AI, including chipmaking hubs in South Korea and Taiwan, were significant outperformers, with the South Korean KOSPI up 68% and Taiwan’s benchmark ahead 45%. In the US, tech-heavy NASDAQ Composite index added more than 21%. For comparison, indices without heavy exposure to AI hardware, such as Europe’s STOXX 600, were still positive but underperformers, up 10% in the quarter. The period was not without volatility, however, as in late June the KOSPI fell more than 10% in a single day, with chipmakers SK Hynix and Samsung hit particularly hard. Trading was paused for 20 minutes.

Strong corporate earnings drove performance in the United States. The Dow Jones Industrial Average rose on the final day of trading to close at a record high. Despite cost pressures, US factory activity grew for the sixth straight month – its longest run in nearly four years.

Factory activity expanded in China, Japan and South Korea on demand for AI-related tech including chips and computers. Chinese manufacturing expanded for a seventh straight month in June, though eased slightly from May. Japanese manufacturing also expanded for a sixth consecutive month; new orders grew at their fastest pace in two years. Input costs are at four-year highs, a sign that price pressures could impact profit in the coming months.

The Australian dollar rose significantly early in the quarter and gave back value in June, ending at US$0.6917, a depreciation of around 0.8%. The value peaked at US0.7258 on 13 May. The value of the dollar fell to three-month lows on a stronger US dollar and expectations that the US Federal Reserve would hold rates higher for longer, as well as a moderating RBA. Despite the retreat, the Aussie dollar is up around 4.4% for the year.

Central bank activity

At the first meeting of the US Federal Reserve under new chair Kevin Warsh, the bank took a more hawkish perspective that many observers expected, removing monetary policy easing bias and signalling that the Fed’s next move could be a rate rise. In justifying the position, the Fed issued a short statement noting that economic activity is expanding despite elevated geopolitical uncertainty, strong levels of productivity growth and capital investment, and relatively low unemployment and elevated inflation. US Treasury yields rose through the quarter as a result. The 2-year Treasury was particularly sensitive as it tracks policy expectations more closely.

Japanese government bond prices fell (yields rose) as the Bank of Japan was one of the more active central banks in the quarter, raising rates in June to 1.0%, the highest level since September 1995. The yen has remained historically weak, prompting speculation that the government will engage in another round of moves to boost the level against the US dollar, which it has done previously.

In the Eurozone, government bonds had a soft quarter with the German bund yield rising as the European Central Bank (ECB) signalled concern about inflation due to the Middle East energy shock, raising key interest rates by 25 basis points at its June meeting.

The Reserve Bank of Australia (RBA) kept the cash rate unchanged at 4.35% at its June meeting – a unanimous decision – however raised the rate once during the quarter, at its May meeting.

Australian activity

The Australian share market was positive in the June quarter though lagged international equivalents, with the S&P/ASX 300 Accumulation Index returning 4.14%.

Despite both volatility and underperformance, the ASX 300 has gained nearly 3% in FY26, though it was the weakest performance since FY22. Materials have been strong performers through the year, with the S&P/ASX 200 Materials Index up 47.4%, outperforming all other sectors combined. Materials weighed on shares at the end of the quarter, with the S&P/ASX 200 Materials Index dipping 9.1% in the last two weeks of the June.

In explaining its June rate decision, the RBA Board said it remained focused on ensuring that inflation does not become embedded once higher oil prices pass through to the broader economy. This is done by making changes that restrict growth in demand which reduce capacity pressures. The Board observed that, following three increases in the cash rate to start the year, that financial conditions are tighter than they were and the economy is slowing as expected.

Australian Treasurer Jim Chalmers introduced his fifth budget during the quarter, proposing significant reforms to negative gearing, capital gains and discretionary trust tax arrangements designed to support home ownership and fund income tax cuts.

Reports at the end of June indicate that the combination of high rates, inflation pressures and proposed changes has shifted the Australian property market into its ninth downturn in the last 30 years. In the first half of 2026, house prices in Melbourne have fallen 8% while prices in Sydney are off by 7%; 3.2% in the quarter.

Fixed income performance

Global bonds experienced volatility in the June quarter but finished positively, with the Bloomberg Global Aggregate Index – $A Hedged returning 1.46%.

International bond performance was volatile during the quarter, influenced by developments in the Middle East conflict and shifting central bank policy expectations, particularly as inflation remained high through most of the world. Heightened global inflation expectations due to oil price spikes and disruptions across commodity markets filtered through to central banks and shifted both expectations and messaging about potential rate increases.

Australian bonds produced reasonable capital growth during the quarter due to falling yields from reducing rate hike expectations. The Bloomberg AusBond Composite 0+ Year Index returned 2.65%. The Australian cash market returned 1.07% in the June quarter, as measured by the Bloomberg AusBond Bank Bill Index.

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