Weekly Strategy Note 03/08/2026

Key Investment Themes Shaping Markets: AI Expansion, Higher Rates and Broader Equity Leadership

Global share markets remain near record highs despite a backdrop that would normally be challenging for risk assets. The combination of higher-than-expected interest rates, ongoing geopolitical uncertainty and elevated valuations has not prevented markets from moving higher.

The key driver continues to be corporate earnings growth, particularly in sectors linked to artificial intelligence, cloud infrastructure and digital productivity.

Importantly, market leadership is beginning to broaden. While the largest technology companies remain influential, investors are increasingly rewarding businesses exposed to the broader AI supply chain, including data centres, power infrastructure, semiconductors, networking equipment and industrial automation. This is a healthier development for long-term market sustainability than a rally driven solely by a handful of mega-cap stocks.

Theme 1: Artificial Intelligence remains the dominant structural investment trend

The AI theme is no longer simply a technology story. It is becoming an economy-wide capital investment cycle.

Large technology companies continue to commit extraordinary amounts of capital to AI infrastructure. The scale of planned investment from major cloud providers remains one of the largest corporate investment programs in history, supporting demand for semiconductors, data centres, electricity generation and network infrastructure.

For investors, this is an important distinction. The opportunity is no longer restricted to software developers or chip designers. The beneficiaries increasingly include:

Data centre operators
Electrical equipment manufacturers
Power generation businesses
Network infrastructure providers
Industrial automation companies
Select real estate and infrastructure assets

The market appears to be transitioning from speculation about AI to focusing on which companies are actually generating earnings and cash flow from the technology.

Theme 2: Interest rates remain higher for longer

One of the biggest surprises of 2026 has been the persistence of higher interest rates.

Markets entered the year expecting a continuation of the global easing cycle. Instead, central banks have largely remained on hold as inflation has proved more resilient than anticipated. Recent commentary continues to suggest policymakers remain cautious about declaring victory over inflation.

This environment creates both opportunities and risks:

Opportunities

Cash and fixed interest remain attractive sources of income.
Bond yields are materially higher than they were during the ultra low rate era.
Investors are now being paid to hold defensive assets.

Risks

Valuations for long-duration growth assets remain sensitive to interest rate expectations.
Highly leveraged businesses face greater financing pressure.
Property markets continue adjusting to higher funding costs.

For diversified investors, the return of meaningful fixed-income yields is arguably one of the most significant changes to portfolio construction over the past decade.

Theme 3: Global growth remains resilient

Despite regular recession forecasts over the past two years, the global economy continues to grow.

The United States remains the key driver, supported by consumer spending, employment strength and business investment. Europe remains slower but stable, while China continues to rely on targeted stimulus and policy support to offset structural challenges.
This resembles a mature economic expansion rather than a recessionary environment.

Historically, this type of backdrop tends to favour:

Quality companies with sustainable earnings growth
Businesses with pricing power
Infrastructure and real assets
Diversified equity exposure

It is generally a less favourable environment for speculative assets that rely heavily on cheap capital.

Theme 4: Energy and geopolitics remain key risks
While markets have shown an impressive ability to absorb geopolitical events, risks have not disappeared.

Ongoing tensions in several regions continue to influence energy prices, supply chains and inflation expectations. Geopolitical fragmentation
is increasingly becoming a structural rather than temporary feature of global markets.

This does not necessarily mean investors should reduce risk dramatically. However, it reinforces the importance of:

Diversification across regions
Exposure to multiple sectors
Maintaining sufficient liquidity
Avoiding concentration in a single investment theme

Theme 5: ETFs continue gaining institutional acceptance
An interesting trend that is receiving less attention is the growing use of ETFs by institutional investors.

Research published by S&P Dow Jones Indices indicates that ETFs are increasingly being used not only for tactical purposes but also as long-term strategic portfolio building blocks. More than half of surveyed North American institutions now use ETFs, with growing allocations expected over the next 12 months.

This trend reflects the continued movement toward:

Lower-cost implementation
Greater portfolio flexibility
Broad market diversification
Faster portfolio rebalancing

Summary

The market narrative has shifted from "Can the economy avoid recession?" to "Can earnings growth justify current valuations?"

Our preference remains:

Quality global equities
Broad diversification across sectors and regions
Meaningful but not excessive exposure to the AI investment theme
Maintaining defensive assets that can provide income and stability
Remaining focused on long-term objectives rather than short-term market noise

The objective remains the same: participate in long-term growth while maintaining enough resilience to navigate whatever surprises markets inevitably deliver next.

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PO Box 2082
Churchlands WA 6018

WEEKLY STRATEGY NOTE