Two speeds in the Australian economy

Markets have been led by AI infrastructure, defence and commodities, but the gap between winners and losers has been extreme. AI-linked stocks have been chased by investors, while perceived losers have been sold just as aggressively. In some cases, share prices have moved more than 50% on narrative alone. In a market this narrow, traditional valuation methodologies have been under pressure.

Locally, inflation remains sticky at 4.35%, having been revised higher three times this year. Higher government spending is not helping, and the proposed tax changes add another layer of uncertainty for investors. Housing also needs to be watched closely. Sydney prices are estimated to be 10–15% below their peak, auction clearance rates remain weak, and buyer enquiry has slowed materially.

The implications for the ASX200 are material given around 25–30% of the index is made up of banks and credit providers with exposure to property-backed lending. Most superannuation portfolios carry the same exposure through their holdings in the major banks. If the weakness in Sydney spreads to other capital cities, as it often has in the past, the impact will not be limited to housing. It is likely to flow through to household spending, bank earnings and super balances.

We are increasingly seeing a two-speed economy. Resources and companies earning revenue offshore are holding up better, while banks and consumer discretionary businesses tied to domestic credit are lagging. That gap was already evident in FY26, when Australian focussed equities materially underperformed global markets.

Our view is that portfolios should remain diversified, but with a clear bias toward global revenue earners, mining, energy, defence and healthcare, rather than businesses heavily reliant on the domestic mortgage and consumer cycle. Fixed interest, infrastructure and alternative assets should also provide a fair reward for risk. Volatility will almost certainly remain part of the backdrop.

Guardian Investments Pty Ltd ABN 18 608 506 261 is a Corporate Authorised Representative of Guardian Associates Pty Ltd AFSL 238281. This page reproduces commentary published in June 2026 and is general advice only. It has not been tailored to your objectives, financial situation or needs, and the figures were current at the time of writing. Past performance is not a reliable guide to future returns. Seek personal financial advice before acting on it.