Rudi’s View: Lower Bond Yields & Other Catalysts

Rudi's View | 10:00 AM

Identifying share price catalysts in a largely moribund market for the weeks (and months) ahead.

By Rudi Filapek-Vandyck, Editor

At JPMorgan's financial markets update in Sydney last week, I asked Global Market Strategist Kerry Craig and Sonal Tanna, Portfolio Manager, EMAP Equities, how much rising bond yields have contributed to this year's de-rating of global equities.

Their answer took me by surprise: only a small impact, at most.

JPMorgan's observation is that most equity markets have slightly de-rated in 2026, meaning average PE ratios have contracted slightly.

But instead of blaming rapidly rising bond yields, the in-house view is that slower growth ahead in 2027 and greater scrutiny of the AI trade are more important drivers.

While Australia's major indices have had to rely mostly on dividends for their positive investment returns year-to-date, many offshore markets are showing double-digit gains, including the US, Japan and better-performing emerging markets.

These gains have been driven by robust growth in corporate earnings, with contracting PE ratios weighing on markets. This stands in sharp contrast to 2025, when multiple expansion proved an important contributor to widespread double-digit gains.

Australia stands out this year with a rather dismal return of around 1%, excluding dividends, and the prospect of minimal profit growth, largely supported by energy and mining companies.

Consensus expectations remain positioned for around 7% growth in EPS for the ASX200 in FY27, but this number remains subject to considerable debate about inflation, RBA rate hikes, property values and the resilience of consumer spending in the face of it all.

Earnings forecasts seem to be stabilising, but the coming two months, filled with out-of-season profit updates and AGMs, will provide fresh insights into this matter.