At the same time, evolving dynamics in global energy markets and the rapid advancement of artificial intelligence (AI) are reshaping how investors assess both risk and opportunity. 

In AFIC’s view, there are constructive underpinnings for Australian equities, balanced by several factors that warrant careful consideration. In such an environment, maintaining a long-term perspective remains critical.  

AFIC continues to focus on businesses with durable competitive advantages, strong balance sheets and management teams capable of adapting to changing conditions. 
 

Bull case: resilience and selective opportunity 

Market volatility has also created opportunities, particularly in cases where share prices have adjusted despite relatively stable company performance. This has been evident in parts of the consumer and technology sectors, where sentiment has softened amid concerns around household spending and structural change.  

Such conditions may help explain why some company valuations have adjusted relative to recent history. 
 

Bear case: geopolitical risk and structural disruption

However, several risks may weigh on the outlook for Australian equities. Geopolitical tensions, including the conflict in the Middle East, have highlighted vulnerabilities in the global energy supply. Disruptions to key transit routes such as the Strait of Hormuz have contributed to elevated energy prices, with potential flow-on effects for inflation, global growth, and market volatility. 

Technological disruption is another consideration. AI’s rapid advancement is prompting organisations to reassess operating models and cost structures. Historically, such shifts have created winners and losers and markets have quickly repriced companies perceived as more exposed to disruption. 

Macquarie Group analysis suggests that Australia’s four major banks may reduce their workforce by up to 30% over the next five to 10 years as AI adoption progresses [1].  

Already, market impacts are emerging. Even companies delivering solid results have seen share prices fall amid concerns over AI’s impact. Many businesses had been valued on the assumption of uninterrupted growth. In AFIC’s opinion, current uncertainty about AI has brought valuations to more reasonable levels.  

Looking ahead, the effectiveness of AI depends on the quality of the data it processes, and success will depend on access to proprietary data, licenses and network effects. These factors are likely to differentiate long-term winners from those more exposed to disruption. 

2. Global macro backdrop remains a tailwind despite geopolitical risks 

But in Ten Cap’s view, markets are doing what they have done for the past five years. They have become adept at isolating the impact of shocks and/or risks, and reallocating money into areas that either benefit or are less impacted. 

There are several factors supporting the bull case. Firstly, the global macro backdrop remains a tailwind despite geopolitical risks. Ten Cap believes the global economy is solid, and the US Federal Reserve remains ready to provide more support if needed.  

In addition, Ten Cap notes that, based on current information, corporate profit conditions have remained relatively resilient despite recent energy concerns. Equity market leadership was broadening out (to more companies) prior to the onset of the latest Middle East conflict - a trend Ten Cap expects will resume as we pass peak uncertainty on oil supplies.  

Historically, Australia has been regarded as a safe haven during global risk-off events. In Ten Cap’s opinion, this is unlikely to change given our market’s high concentration in banks and domestically-driven companies.  

In Ten Cap’s view, the Australian economy has been operating above trend and the consumer, while feeling blue, has not dialed back spending at a pace that puts growth at risk.  

Similarly, the corporate profit outlook is encouraging. Ten Cap expects both large and small caps to post mid to high single-digit growth in 2026/27. Admittedly this could fall, but the momentum is certainly up.  
 

Bear case: domestic economic pressures may weigh on Australian equities 

On the other hand, it is possible to take a bearish stance on equities. The Australian equity market benefits from none of the structural drivers powering US and global equities, such as AI and other technologies. 

Our economy is also out of sync with the global economy cycle as the Reserve Bank raises interest rates after it failed to get inflation back to its target range through 2024/25. 

Australian households face the grim reality of further cost-of-living pressures, exacerbated by the effects of a rapid rise in the oil price. Higher interest rates could slow consumer spending and housing – the lifeblood of consumer optimism in Australia.  

Rising energy prices could force further profit margin erosion and higher prices. This is potentially a toxic combination for consumer spending - the largest driver of the Australian economy and corporate profits.  

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[1] Macquarie warns Australia’s big four banks could replace 30 per cent of staff with AI in next five to 10 years, The Western Australia, 24 March 2026.