Australian Shares: Australian shares fell 2.4% in September, bringing 12-month returns to 2.7%.

 

Property and Infrastructure: Hedged global listed property fell 5.3% in September, bringing 12-month returns to 2.9%. Hedged global listed infrastructure fell 4.7%, bringing 12-month returns to 4.8%. Australian listed property fell 1.8%, bringing 12-month returns to -14.3%. Rate-sensitive sectors were among the weakest parts of the market as long-dated bond yields reached their highest levels in more than two decades. Despite their inflation-hedging attributes, these long-duration assets were pressured by the rise in real yields.

 

September 2026 was a difficult month for global markets, as a global bond sell-off, firmer oil prices and the first US rate hike since 2023 weighed on sentiment. The Middle East conflict again drove energy markets, with Brent crude rising 14.0% as US-Iran talks stalled and the Strait of Hormuz remained a key risk. Long-dated bond yields surged as eight major central banks lifted rates during the month. Strong corporate earnings helped keep share markets not far from record highs, although they lost ground over the month.

 

Australian shares lagged global peers as inflation reaccelerated and the RBA raised the cash rate for the fourth time in 2026. Rate-sensitive assets were among the weakest parts of the market, with listed property, infrastructure and bonds all falling as yields rose. Emerging markets posted a modest gain, while the Australian dollar weakened against the US dollar as interest rate differentials narrowed in favour of the US.

 

The Federal Reserve raised the federal funds rate by 25 basis points to the 3.75%-4.00% range on 16 September in a unanimous vote, its first increase since 2023, with projections pointing to one more increase this year. The Federal Open Market Committee (FOMC) minutes provided the forward guidance that Chair Kevin Warsh is so reluctant to give, essentially signalling a pause in October but another hike before the year’s end and the need for at least two more hikes this cycle.

 

In addition, Fed Governor Christopher Waller, speaking at a central bank forum in Turkey, noted the reasons why he has pivoted from a previously more doveish perspective. The key factors were:

1.The persistence of disruption from the Iran conflict and the flow on effect to diesel prices,

2.The apparent flow on effect of the AI boom on other prices, and

3.The emergence of new potential tariff pressures (e.g. Canada).

 

Given inflation has exceeded the Fed’s target for five-and-a-half years, these new pressures may lead to a shift in expectations of inflation.

 

The August monthly CPI showed inflation rising to 4.0% from 3.5% in July, while the RBA’s preferred trimmed mean measure held at 3.6%, more than one percentage point above target. The RBA raised the cash rate by 0.25% to 4.60% on 29 September, its fourth increase of 2026 and the highest level since late 2011 and said it would lift rates further if needed. The unemployment rate rose to 4.6%, a post-Covid high, and house prices are now more than 5.0% below their March peak. Following Governor Michele Bullock’s comments that policy is now restrictive, markets are factoring in one more hike in 2026 and steady policy thereafter.

 

Global and Australian share markets are at risk of a further correction given the lack of any resolution to the Iran War and high oil prices, rising bond yields and stretched valuations, sticky inflation and central bank rate hikes, political uncertainty associated with the midterm elections and worries about the impact of AI and whether there is an AI bubble. However, returns should still be okay for the next 12 months as a whole thanks to continuing economic growth with recession likely to be avoided, (albeit it’s a rising risk in Australia).

 

Bonds are likely to see subdued returns.

 

Unlisted commercial property returns are likely to be solid helped by strong demand for industrial property associated with data centres. Rising bond yields could become a constraint though.

 

Australian home prices are expected to fall around 10-15% top to bottom, of which they have already done 5.2%, out to the June quarter next year as a result of poor affordability, RBA rate hikes, reduced investor demand flowing from the winding back of negative gearing and the capital gains tax discount and poor confidence. Rising distressed sales risk also becoming a drag.

 

Cash and bank deposits are expected to provide returns around 4-5%.