A pullback from Australian assets is accelerating as investors shift capital toward hot markets globally that promise returns far outpacing the muted prospects at home.
MLC Asset Management and JPMorgan Asset Management are among those expecting stronger equity returns offshore, while T. Rowe Price is betting the Reserve Bank’s hawkish stance will flatten the yield curve for bonds.
The message for investors chasing upside in Australian assets is clear: look elsewhere. The benchmark S&P/ASX 200 Index lagged peers in 2025, while bond prices dropped as the central bank weighs pivoting back to tightening monetary policy.
International investors are walking away from the Australian sharemarket.Credit: Louie Douvis
“We’re under-allocated to Australia” shares as it’s hard to see them outperform in 2026, said Patrick Nicoll, head of asset allocation at MLC. “We’re also short duration in Australia, expecting [bond] yields to rise” as the RBA lifts rates again.
Chief among investor concern is the weak profit growth among some of Australia’s largest companies. The Commonwealth Bank – which accounts for about 10 per cent of the ASX 200 — trimmed gains after a November update highlighted margin pressure amid valuation concerns. Biotech giant CSL capped its worst year in more than two decades as disappointing earnings and a soft US vaccine market dented investor confidence.
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As a result, Australian stocks may gain less than 5 per cent over the next 12 months, about one-third the expected rally in the MSCI All-Country World Index, according to analyst price targets compiled by Bloomberg.
Earnings growth ahead will be driven by cyclical metals and a mining recovery, which is “likely to be the leader in terms of earnings depending on the pathway for inflation and rates,” according to Penny Heard, head of equities at UniSuper. Domestically focused sectors like industrial and consumer discretionary may face challenges ahead, she added.
Meanwhile, the RBA’s hawkish slant has wreaked havoc on the nation’s debt. Traders expect the central bank will hike rates again by June, with a one-third chance it will lift rates in February, according to swaps data compiled by Bloomberg.
