Market commentary: Mar 2026
Portfolio performance
Investment returns tapered off in March following the US/Israel invasion of Iran, and portfolios ended with below average (but positive) returns for the year. For the 6 month period to 31 March returns were negative. Infrastructure returns were the highlight followed by international shares. Australasian shares and international fixed interest detracted from overall returns.
The market bubble
I listened to a presentation by Scott Berg (portfolio manager at T. Rowe Price Global Equity Fund) and I thought it interesting enough to share. In his opinion, we are in a bubble but only part way through. However, there are warning signs.
Berg uses the T. Rowe “Bubble watch” model to assess where global markets are in the market cycle. It’s based on the 5 big things that history has shown to pop bubbles. Here’s what he had to say:
Rising interest rates. If interest rates rise this could cause a market bubble to burst. It happened with the Dot-com bubble in the late 1990’s. At this time markets are not predicting that rates will rise, but the probability of rate cuts has reduced.
Economy recession. An economic recession can end a bubble. According to the CEOs of the big banks, regional banks, brokerage houses, and big industrial companies in the US the economy is growing solidly – not booming but nowhere near recession. The mood is cautiously optimistic.
Artificial intelligence super cycle. Berg sees this as the heart of the current bubble. Capital spending by the likes of Amazon and Google on AI development is staggeringly high which is something to be cautious about, but AI companies remain profitable. The question is will the huge capital spending produce the returns expected by the market.
Borrowing. Often the root cause of bubbles is companies borrowing heavily and not delivering. While there are warning signs of increasing borrowing, company balance sheets are in good shape and capital expenditure is largely funded by free cashflow from profits.
Geopolitics. This is the big area we are watching and is seen as the biggest risk to share markets. The closure of the Strait of Hormuz is having global ramifications. Every day it remains closed increases pressure on the economy and the possibility of global recession.
Overall, Berg feels there is some way to go until the bubble bursts. Our own research supports this view – albeit from a different angle. We monitor market prices and market psychology. Prices are elevated but not overly so. Our focus is market psychology data which while reducing is still in optimistic territory indicating there is some way to go.
Richard Grimes, CERTIFIED FINANCIAL PLANNER (CFPCM), Director and Financial Adviser