To The Moon

The first half of 2026 has officially come to an end, and at first glance, Australia’s equity market looked surprisingly uneventful.

As of June 30, $S&P/ASX 200(XJO.AU)$ closed at 8,778.7, up just 0.74% year to date. On a financial-year basis, the index returned roughly 2.7%–2.8%, making FY2026 one of the weaker years in recent history. While major overseas markets were driven by AI enthusiasm and large-cap technology, Australia spent much of the year battling higher interest rates and a slowing domestic economy, leaving the headline index largely stuck in place.

Macro headwind throughout the first half: rate hike.

The Reserve Bank of Australia (RBA) raised rates three consecutive times in 2026, lifting the cash rate to 4.35% by May before pausing in June. The pause was far from dovish. Policymakers continued warning that additional tightening remained possible if inflation failed to return to target, while Australia’s April CPI still stood at 4.2%, comfortably above the RBA’s 2%–3% target range. Markets are now turning their attention to the June-quarter CPI release on July 29, followed shortly by the RBA’s August policy meeting, where another rate hike remains a realistic possibility.

Higher borrowing costs also began weighing on the property market. Australian home prices fell 0.4% in June, the largest monthly decline in more than three years, led by Sydney (-1.2%) and Melbourne (-1.0%). Softer housing conditions further dampened investor sentiment toward domestic cyclicals and interest-rate-sensitive sectors.

Yet beneath the seemingly flat index, sector performance could hardly have been more different.

Materials became the clear leader during FY2026, rising 48.23%, followed by Energy (+9.84%) and Consumer Staples (+9.74%). On the other side of the market, Healthcare (-37.47%), Information Technology (-37.06%), and Communication Services (-12.36%) suffered significant declines.

The leadership within Materials also changed in an important way. Previous Australian resource cycles were largely driven by iron ore, but this year’s rally was much broader. Gold, lithium, tungsten, scandium, recycled metals and other critical minerals all attracted capital as investors increasingly focused on supply-chain security, defence spending, AI infrastructure and the global energy transition. Rather than simply betting on higher commodity prices, investors were paying for Australia’s strategic position in supplying the raw materials required for a rapidly changing global economy.

Technology and healthcare experienced the opposite dynamic. Unlike the U.S., Australia lacks large-scale AI platform companies. Instead, many of its listed technology names are software providers, healthcare businesses and enterprise service companies that investors increasingly questioned. Rather than benefiting directly from AI spending, companies such as WiseTech and Xero faced concerns that AI could eventually pressure subscription pricing, margins and competitive advantages. The market has not turned against AI itself—it has simply become much more selective about which companies actually receive AI capital spending and which companies merely face AI disruption.

This has given rise to a uniquely Australian AI investment theme. Instead of investing in foundation models, investors increasingly focused on the “picks and shovels” supporting AI infrastructure. Companies such as Megaport, Sims, Weebit Nano and GenusPlus each represent different pieces of that ecosystem, ranging from cloud networking and data-centre recycling to next-generation memory technology and electricity infrastructure. Australia’s AI story has become less about software and more about enabling the infrastructure behind it.

Among individual stocks, five companies clearly stood out during H1

1.$Tasmea Ltd(TEA.AU)$ climbed 109%, driven by exceptional earnings growth and acquisitions.

First-half FY2026 revenue reached approximately A$400.5 million, up 62% year over year, while management highlighted strong demand across mining, water infrastructure and electrical services. Investors increasingly view Tasmea not as a traditional industrial contractor but as a beneficiary of Australia’s long-term electrification buildout.

2.$SUNRISE ENERGY METALS LTD(SRL.AU)$gained 103%, supported by its Syerston Scandium Project and a strategic agreement with Lockheed Martin covering up to five years of scandium oxide supply.

With scandium becoming increasingly important for defence and advanced manufacturing, SRL has become a direct beneficiary of U.S.-Australia critical mineral cooperation.

3.$Almonty Industries Inc(AII.AU)$ rose 79% as tungsten prices strengthened and operating performance improved significantly.

First-quarter revenue increased 221% year over year, operating cash flow turned positive, and investors increasingly focused on the commercialisation of the Sangdong Tungsten Mine in South Korea, one of the world’s most strategically important tungsten projects.

4.$MEGAPORT LTD(MP1.AU)$ delivered a 70% return after announcing approximately A$458.9 million in AI infrastructure contracts alongside plans to build a distributed AI inference cloud supported by new capital raising.

Originally viewed as a cloud networking company, Megaport is increasingly being valued as critical AI infrastructure connecting GPUs, storage and cloud computing.

5.$GENUSPLUS GROUP LTD(GNP.AU)$ advanced 65% as Australia’s energy transition continued driving investment into transmission networks, battery storage systems and communications infrastructure.

Revenue grew 61% during the first half, while investors increasingly recognised the company’s role in enabling Australia’s long-term electricity grid expansion.

Looking ahead, second half is unlikely to become a broad-based bull market

Instead, they expect another period characterised by modest economic growth, elevated interest rates and significant sector divergence.

UBS remains cautious, maintaining an ASX 200 year-end target of 8,800, implying limited upside while continuing to favour mining and industrial companies. The bank also expects another RBA rate hike in August, with the first rate cut potentially delayed until late 2027.

Morgan Stanley is more constructive, targeting 9,250 for the ASX 200 and seeing roughly 8% upside over the next twelve months, supported primarily by stronger mining earnings and a gradual recovery in corporate profitability.

Macquarie continues to emphasise quality businesses with pricing power, strong balance sheets and sustainable earnings, while CBA expects the cash rate to remain at 4.35% well into 2027.

Five variables are likely to shape H2

1. whether the RBA raises rates again in August. Another hike would likely place further pressure on housing, consumer spending, REITs and expensive growth stocks.

2. whether gold and critical minerals can maintain their recent strength. Continued momentum across gold, tungsten, scandium, lithium and copper would provide significant support for Australia’s resource sector.

3. whether the AI investment theme continues broadening into Australia’s infrastructure beneficiaries, including Megaport, Sims, Weebit Nano, NEXTDC and companies involved in power infrastructure.

4. technology and healthcare may finally begin stabilising after experiencing significant valuation compression, although sustained recoveries will ultimately depend on earnings expectations bottoming.

5. the domestic housing market remains an important risk. If property prices continue weakening, banks, REITs and consumer-facing businesses could all face additional headwinds.

The first half demonstrated that Australia’s market was far more dynamic than the headline index suggested. While the ASX 200 barely moved, capital quietly rotated into critical minerals, energy infrastructure and AI-enabling businesses, while many former market leaders underwent significant valuation resets. Whether that rotation continues—or broadens into a wider market recovery—will largely determine Australia’s investment landscape in the second half of 2026.

Discussion

Which theme do you prefer for the second half: Australian resource companies or AI infrastructure plays?

If the RBA raises rates again in August, do you expect the ASX 200 to fall below 8,500, or will resource stocks continue supporting the market?

Among Australia’s AI infrastructure names—Megaport, Sims, and Weebit Nano—which one do you believe has the strongest long-term potential?