Fear, FOMO and Fundamentals
Global equities produced strong gains during the June quarter, even as investors grappled with Middle East tensions, volatile oil prices and uncertainty around inflation and interest rates. Greg Fleming, Head of Diversified Funds at Salt Funds Management (Salt), reviews the key market developments and considers what they may mean for investors going forward.
Despite some modest softness in June month in the US markets, global financial markets delivered another surprisingly resilient quarter, while having to navigate a challenging backdrop that included the Iran-Israel conflict, elevated oil prices, ongoing trade tensions, rising long-term government bond yields and renewed concerns around inflation. Developed market equities rose +4.5% in the month in NZ dollar terms – but that was a return built on the -5.2% drop in the NZ dollar against the US currency during the June month. However, international equities returned +14.1% (in NZ dollars) over the quarter, supported by resilient corporate earnings and optimism that the worst of the geopolitical uncertainty had passed. The total return was lifted for unhedged New Zealand investors by a renewed soft period for the NZ dollar against the US currency, which strengthened on firmer Fed interest rate expectations and a degree of “flight-to-quality” against the fraught geopolitical backdrop.
The June quarter was dominated by developments in the Middle East. Brent crude, a key global oil benchmark for oil prices, briefly traded close to US$120 per barrel during the height of the conflict before retracing as ceasefire negotiations progressed. By the end of June, the price of Brent was back down (temporarily) at US$ 73/barrel, which it had last cost at the end of February. While the immediate disruption to energy supplies eased in June, volatile oil prices reinforce the view that geopolitical risk is likely to command a higher structural risk premium than investors have become accustomed to over recent decades.
This has become apparent at the very end of the month, as Gulf tensions re-ignited.
In the United States, equity markets continued to be broadly supported by another strong corporate earnings season, reinforcing confidence in the resilience of the economy. Economic activity slowed modestly but remained consistent with ongoing expansion, while inflation moved higher as the effects of elevated energy prices flowed through to headline consumer prices. The month saw some profit-taking in US shares, with the S&P 500 down -1% in US dollar terms and the NASDAQ declining almost -3%. By month-end, markets had largely abandoned expectations of further near-term Federal Reserve easing under the new Chair, Kevin Warsh, despite previous anticipation that he would prove dovish.
Continuing strength particularly in Semiconductor company earnings and forward guidance helped to assuage investors’ fears of any widespread profit shocks, amid the still-uncertain macro backdrop. The market appeared to take an increasingly confident stance that the Iran conflict, whilst driving up energy prices near-term and complicating global trade and alliances, would ultimately prove marginal to US corporate profitability. This remains to be seen, as producer costs in the US have risen. In the year through to May, the Producer Price Index advanced 6.5%, the biggest gain since late 2022. The Central Bank’s hands are rather tied, in their scope to support GDP growth.
Overall positive momentum in International Equities in the June quarter (despite the soft June month in the US) continues to mask intensified swings in market sentiment. The enthusiasm and periods of re-assessment are alternating and leading to substantial volatility within individual markets. The current focus of this scrutiny in the semiconductor industry. Markets will need to assess whether recent pressure on hyperscaler shares changes the perceived path for AI capital expenditure. Indications that spending plans remain intact would help reassure investors that demand for AI infrastructure remains durable, but further evidence of caution could keep attention focused on very high valuations, massive financing needs, and extensive concentration risk.
An example of the “single AI trade” impact on individual global markets is the South Korean KOSPI Index, home to Samsung and SK Hynix, which together make up just over half of the national equity index by weighting. The euphoric views in June on semiconductor demand and associated profit paths drove Korea to the largest individual gain 2026-to-date: with the Korean Index more than doubling over the year. Taiwan was in hot pursuit. Realised volatility on the Korean market surged, to a level last seen during the Asian economic crisis of 1997-98. However, this time around, the catalyst wasn’t fear and flight, but fear of missing out (FOMO). That degree of crowding does flag a risk to other technology-heavy markets, in the event of any deterioration in the chip sector demand or profitability outlook.
Europe remained the weakest of the major developed economies. Business surveys softened and economic growth continued to lag other regions. However, higher energy prices pushed inflation higher, leaving the European Central Bank facing the difficult trade-off of weaker growth alongside renewed inflation pressures. At the June 11 meeting, the European Central Bank raised its three key interest rates by 25 basis points. This move lifted the deposit facility rate to 2.25% in response to energy shocks and ongoing inflationary pressures.
In Japan, economic growth remained solid, supported by robust domestic demand, strong exports and expansionary fiscal policy. Inflation remained above the Bank of Japan’s target, allowing policymakers to continue the gradual normalisation of monetary policy.
China’s economy remained subdued throughout the quarter. Household spending and property market activity continued to disappoint, while manufacturing momentum softened. Although policymakers introduced additional fiscal support measures, markets remained cautious about the durability of China’s recovery given ongoing structural challenges in the property sector and weak consumer confidence.
Australia faced a difficult combination of slowing economic growth and persistent inflation. Sticky domestic price pressures and higher fuel costs prompted the Reserve Bank of Australia to deliver further interest rate increases during the June quarter, although softer activity data towards quarter end reduced expectations of an extended tightening cycle.
In New Zealand, the focus was firmly on monetary policy. The Reserve Bank left the OCR unchanged at 2.25% in June but signalled that the next move in interest rates would likely be higher, as inflation pressures remain elevated. This indeed eventuated in early July, with an OCR hike to 2.5%. The Government’s Budget presented a somewhat stronger near-term fiscal outlook than expected, although the underlying economic assumptions appear optimistic given the uncertain global environment and the ongoing drag from higher energy prices.
International bond markets remained volatile, as investors balanced slowing global growth against renewed inflation pressures stemming from higher energy prices and persistent fiscal deficits across many developed economies. In June month, yields for U.S. Treasuries stayed almost flat at around 4.5%. The global aggregate bond index was up +0.9% (in USD) and 1% in NZD-hedged terms over the quarter. The New Zealand bond market also advanced in June, with the S&P/NZX Fixed Interest Composite Index up 1.2%. Government bonds led with a 1.3% gain, closely followed by Local Authorities at 1.28% and Corporates Investment Grade at 1.06%. The overall NZ market yield was 4.04%, remaining low, with no risk premium evident for Investment Grade corporates above Government and Local Authority bond yields.
Fairly restrained moves in bonds globally have supported international listed real assets, with global property shares enjoying a strong quarterly NZD-hedged return of +8.5%, of which +1.7% accrued in the June month. Global listed Infrastructure shares also bucked the soft International Equity trend in June, by rising 2.1% for the month, recovering a comparable decline from May. We continue to see a favourable outlook for the listed Real Assets, as their stable cash-flows and resilience in the face of sticky inflation remain attractive – plus, their pricing is not subject to the same optimism on an AI Revolution supercharging profitability – a claim which in key economic areas remains to be proven.
We anticipate the second half of 2026 will continue to see many cross-currents affecting asset markets, particularly as the US mid-term elections in November are likely to prove unusually consequential future economic, military, and trade policies which will affect the whole world.
If you want to see which Salt funds are available on InvestNow, plus read any other opinion or commentary pieces from Greg and the team at Salt, please visit their page on our website.
Fear, FOMO and Fundamentals
Global equities produced strong gains during the June quarter, even as investors grappled with Middle East tensions, volatile oil prices and uncertainty around inflation and interest rates. Greg Fleming, Head of Diversified Funds at Salt Funds Management (Salt), reviews the key market developments and considers what they may mean for investors going forward.
Despite some modest softness in June month in the US markets, global financial markets delivered another surprisingly resilient quarter, while having to navigate a challenging backdrop that included the Iran-Israel conflict, elevated oil prices, ongoing trade tensions, rising long-term government bond yields and renewed concerns around inflation. Developed market equities rose +4.5% in the month in NZ dollar terms – but that was a return built on the -5.2% drop in the NZ dollar against the US currency during the June month. However, international equities returned +14.1% (in NZ dollars) over the quarter, supported by resilient corporate earnings and optimism that the worst of the geopolitical uncertainty had passed. The total return was lifted for unhedged New Zealand investors by a renewed soft period for the NZ dollar against the US currency, which strengthened on firmer Fed interest rate expectations and a degree of “flight-to-quality” against the fraught geopolitical backdrop.
The June quarter was dominated by developments in the Middle East. Brent crude, a key global oil benchmark for oil prices, briefly traded close to US$120 per barrel during the height of the conflict before retracing as ceasefire negotiations progressed. By the end of June, the price of Brent was back down (temporarily) at US$ 73/barrel, which it had last cost at the end of February. While the immediate disruption to energy supplies eased in June, volatile oil prices reinforce the view that geopolitical risk is likely to command a higher structural risk premium than investors have become accustomed to over recent decades.
This has become apparent at the very end of the month, as Gulf tensions re-ignited.
In the United States, equity markets continued to be broadly supported by another strong corporate earnings season, reinforcing confidence in the resilience of the economy. Economic activity slowed modestly but remained consistent with ongoing expansion, while inflation moved higher as the effects of elevated energy prices flowed through to headline consumer prices. The month saw some profit-taking in US shares, with the S&P 500 down -1% in US dollar terms and the NASDAQ declining almost -3%. By month-end, markets had largely abandoned expectations of further near-term Federal Reserve easing under the new Chair, Kevin Warsh, despite previous anticipation that he would prove dovish.
Continuing strength particularly in Semiconductor company earnings and forward guidance helped to assuage investors’ fears of any widespread profit shocks, amid the still-uncertain macro backdrop. The market appeared to take an increasingly confident stance that the Iran conflict, whilst driving up energy prices near-term and complicating global trade and alliances, would ultimately prove marginal to US corporate profitability. This remains to be seen, as producer costs in the US have risen. In the year through to May, the Producer Price Index advanced 6.5%, the biggest gain since late 2022. The Central Bank’s hands are rather tied, in their scope to support GDP growth.
Overall positive momentum in International Equities in the June quarter (despite the soft June month in the US) continues to mask intensified swings in market sentiment. The enthusiasm and periods of re-assessment are alternating and leading to substantial volatility within individual markets. The current focus of this scrutiny in the semiconductor industry. Markets will need to assess whether recent pressure on hyperscaler shares changes the perceived path for AI capital expenditure. Indications that spending plans remain intact would help reassure investors that demand for AI infrastructure remains durable, but further evidence of caution could keep attention focused on very high valuations, massive financing needs, and extensive concentration risk.
An example of the “single AI trade” impact on individual global markets is the South Korean KOSPI Index, home to Samsung and SK Hynix, which together make up just over half of the national equity index by weighting. The euphoric views in June on semiconductor demand and associated profit paths drove Korea to the largest individual gain 2026-to-date: with the Korean Index more than doubling over the year. Taiwan was in hot pursuit. Realised volatility on the Korean market surged, to a level last seen during the Asian economic crisis of 1997-98. However, this time around, the catalyst wasn’t fear and flight, but fear of missing out (FOMO). That degree of crowding does flag a risk to other technology-heavy markets, in the event of any deterioration in the chip sector demand or profitability outlook.
Europe remained the weakest of the major developed economies. Business surveys softened and economic growth continued to lag other regions. However, higher energy prices pushed inflation higher, leaving the European Central Bank facing the difficult trade-off of weaker growth alongside renewed inflation pressures. At the June 11 meeting, the European Central Bank raised its three key interest rates by 25 basis points. This move lifted the deposit facility rate to 2.25% in response to energy shocks and ongoing inflationary pressures.
In Japan, economic growth remained solid, supported by robust domestic demand, strong exports and expansionary fiscal policy. Inflation remained above the Bank of Japan’s target, allowing policymakers to continue the gradual normalisation of monetary policy.
China’s economy remained subdued throughout the quarter. Household spending and property market activity continued to disappoint, while manufacturing momentum softened. Although policymakers introduced additional fiscal support measures, markets remained cautious about the durability of China’s recovery given ongoing structural challenges in the property sector and weak consumer confidence.
Australia faced a difficult combination of slowing economic growth and persistent inflation. Sticky domestic price pressures and higher fuel costs prompted the Reserve Bank of Australia to deliver further interest rate increases during the June quarter, although softer activity data towards quarter end reduced expectations of an extended tightening cycle.
In New Zealand, the focus was firmly on monetary policy. The Reserve Bank left the OCR unchanged at 2.25% in June but signalled that the next move in interest rates would likely be higher, as inflation pressures remain elevated. This indeed eventuated in early July, with an OCR hike to 2.5%. The Government’s Budget presented a somewhat stronger near-term fiscal outlook than expected, although the underlying economic assumptions appear optimistic given the uncertain global environment and the ongoing drag from higher energy prices.
International bond markets remained volatile, as investors balanced slowing global growth against renewed inflation pressures stemming from higher energy prices and persistent fiscal deficits across many developed economies. In June month, yields for U.S. Treasuries stayed almost flat at around 4.5%. The global aggregate bond index was up +0.9% (in USD) and 1% in NZD-hedged terms over the quarter. The New Zealand bond market also advanced in June, with the S&P/NZX Fixed Interest Composite Index up 1.2%. Government bonds led with a 1.3% gain, closely followed by Local Authorities at 1.28% and Corporates Investment Grade at 1.06%. The overall NZ market yield was 4.04%, remaining low, with no risk premium evident for Investment Grade corporates above Government and Local Authority bond yields.
Fairly restrained moves in bonds globally have supported international listed real assets, with global property shares enjoying a strong quarterly NZD-hedged return of +8.5%, of which +1.7% accrued in the June month. Global listed Infrastructure shares also bucked the soft International Equity trend in June, by rising 2.1% for the month, recovering a comparable decline from May. We continue to see a favourable outlook for the listed Real Assets, as their stable cash-flows and resilience in the face of sticky inflation remain attractive – plus, their pricing is not subject to the same optimism on an AI Revolution supercharging profitability – a claim which in key economic areas remains to be proven.
We anticipate the second half of 2026 will continue to see many cross-currents affecting asset markets, particularly as the US mid-term elections in November are likely to prove unusually consequential future economic, military, and trade policies which will affect the whole world.
If you want to see which Salt funds are available on InvestNow, plus read any other opinion or commentary pieces from Greg and the team at Salt, please visit their page on our website.
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