Market Commentary

March 2026

Global share markets were down sharply in the March quarter, with the MSCI World Index ‒ Net returning -6.11% in unhedged AUD terms. In hedged AUD terms, the index returned -3.25%.

International shares were a tale of two halves in the quarter, starting strong – particularly in Emerging Markets, Asia and Europe – followed by a sharp drawdown following the commencement of a joint Israel/US attack on Iran. By the end of March, global equities had suffered significant losses with an estimated US$10 trillion in value wiped out. Brent crude futures are up almost 90%, the biggest Q1 jump on record and the second-largest quarterly rise in history. Petrol prices are up globally, and inflation projections are up significantly as the flow-on effect of limited access to oil as well as fertiliser and LNG that pass through the Strait of Hormuz. This has led to a belief that central banks will be required to raise interest rates where many had been in a position where they were considering easing. 

Geopolitics dominated markets in the quarter; US equities started the quarter positive as investors interpreted central bank positions as tilting toward future rate cuts; however, gains were limited by mid-month volatility following threats of tariffs against European allies who obstructed a US takeover of Greenland. The threats caused the biggest financial market upset since President Trump’s “Liberation Day” tariff announcements in April 2025 which was dwarfed by the drawdowns experienced in March following the attacks on Iran. The US Supreme Court also ruled against the President’s tariffs, saying he exceeded his authority, causing new and higher (if limited) tariffs to be issued. 

Concerns are mounting about US spending and its impact on US Treasury stability. The cost of the Iran war is blowing out for the US, with the Pentagon asking Congress in mid-March for an additional US$200 billion to fund continuing operations. Estimates put the spend at around US$1 billion per day just for the US operations; Israel is estimated to have spent about US$6.4 billion in the first 20 days of the war.

Early in the quarter, investors were already rotating away from US mega-cap tech toward cyclicals, Emerging Markets and value. Magnificent 7 companies underperformed benchmarks during the quarter. Nvidia’s fourth-quarter numbers showed a significant growth in revenue, margins and income but the share price dropped nearly 5%, leaving analysts worried about an AI bubble and capex requirements. The Iran situation is also weighing on the sector as helium – a crucial component in semiconductor manufacturing – is sourced through the Strait of Hormuz and supplies will be limited.

AI has been cited as a reason for massive layoffs through tech and software companies. Oracle announced significant job cuts at the end of the quarter – an expected 30,000 people – as they seek to cut costs and shift responsibilities to AI. They follow the lead of Block, the parent company of Square, which announced 4,000 people would be made redundant; Australian software giants Atlassian and WiseTech also announced AI-related cuts (1,600 and 2,000 respectively).

China was an outperformer during the period, driven by energy resilience both in terms of stockpiles and diversification as well as lower inflation – bordering on disinflation – compared to developed markets. Japan was weaker during the volatility spike due to its exposure to global trade and reliance on imported energy, however the election of Prime Minister Sanae Takaichi – who ran on promises of fiscal stimulus – supported confidence in the nation’s domestic economy.

Global share markets went on a bull run to close the year, led by financials, materials and energy. The “Santa Claus rally” – a tendency for markets to rise in the last five trading days of the year – was due to a variety of factors including lower-than-expected inflationary figures out of the US and expectations that The US Federal Reserve (Fed) would cut rates twice in 2026.

Despite periods of volatility due to concern around AI capex and sustainability, tech has led market upside through the year and was the difference maker between a positive and negative December. Nvidia rallied from a mid-month dip on news that the chipmaker would resume AI-related shipments to China by mid-February with initial deliveries from existing inventory while expanding capacity in the new year. President Trump overturned a Biden-era restriction that limited chip exportation, instead allowing them with a 25% fee.

Energy stocks were winners early in the quarter as oil prices rose on threats on action to Iran. Global equities were broad losers through March as the selloff was broad based. Manufacturing and industrials took late as the Iran situation deteriorated. The US was an outperformer late in the quarter as Asia and Europe struggled due to economic reliance on oil sourced through the Strait of Hormuz. 

Central bank activity

Global central banks generally held their positions through the quarter as inflation moderated. The Reserve Bank of Australia was a notable exception.

The escalation of the Middle East conflict caused an energy shock in March that pushed oil sharply higher, triggering rising inflation expectations and reduced confidence in potential interest rate cuts. While most central banks held rates stable through the period, there were outliers, including the Reserve Bank of Australia (RBA), which hiked interest rates twice during the quarter, landing at 4.10%. 

The US bond market rallied at the end of March – following its deepest selloff in 17 months – as traders reversed expectations for a rate hike, shifting to speculation that the Iran war will exacerbate the economic slowdown. In an address at Harvard, Fed Chair Jerome Powell said the central bank has little control over supply shocks which eased concerns that the Fed would tighten monetary policy.

Australian activity

The Australian share market was down sharply in the March quarter, with the S&P/ASX 300 Accumulation Index closing the period returning -2.04%.

March was the worst month on the ASX since 2022, falling significantly on global geopolitical concerns as well as surging inflation expectations and more tightening measures from the RBA. Tech shares continued to fall with around $7 billion in value erased from the sector in March – the S&P/ASX 200 tech index dropped 12.6% in the month. Mining also took a beating as there was a sell-off in gold and concerns that a diesel shortage could cause operations to be suspended.

In making its March decision to raise the cash rate to 4.10%, the RBA effectively found that its previous opinion on the restrictiveness of the cash rate was not as limiting as it thought it would be. The early indications were that the February hike had weighed a little on credit demand. The RBA said that inflation was expected to remain above its long-run average in the March quarter. 

Interest in Australian homes continues to be strong, particularly as an asset for offshore investors. In FY 2025, offshore buyers invested $3.7 billion with Chinese investors responsible for $1.1 billion. Concerns about the domestic economic situation after the commencement of the Iran war took a toll on the sector, however, as auction rates crashed toward the end of March.

Fixed income performance

Global bonds fell in the March quarter, with the Bloomberg Global Aggregate Index – $A Hedged returning -0.25%. Longer-term Australian government bond yields were higher¹, supported by the growing belief of additional rate hikes this year. 

Generally, global bond yields rose during the quarter which pushed prices down. This was particularly notable in March as there was a sell-off in global bonds triggered by the attacks on Iran and retaliatory strikes on neighbouring and allied countries. Expectations for a rate cut dwindled through March.

Australian bonds underperforming most developed markets in Q1, with yields rising near 5% on 10-year bonds, on speculation (and confirmation) of rate hikes – leading to multi-year highs for Australian 10-year Treasury yields. 

The Australian cash market returned 0.91% in the March quarter, as measured by the Bloomberg AusBond Bank Bill Index.