As global trade war fears subside, Australian investors are primed for their next strategic moves in a brightening market, writes NAB chief economist Sally Auld.
Two years of economic uncertainty are finally giving way to measured optimism. With minimal impact to date from the Trump administration’s tariffs and global market volatility easing, Australia’s economy appears poised for modest growth in the next 12 months. High net worth Australians have, for the most part, weathered the storm well over the past two years as low debt levels and high interest rates have worked in their favour. This cohort has helped sustain Australia’s consumption levels, and now, on the back of rising market confidence and strong asset prices, there is seemingly little to stop the spending of these hard-earned dollars in 2026.
The July 2025 NAB Monthly Business Survey also pointed to companies feeling slightly more optimistic about the future, adding to hopes of a positive shift in Australia’s macroeconomic trajectory. We expect GDP growth to return to trend during 2026, while unemployment is forecast to rise only modestly, peaking at 4.4% by the end of 2025. Inflation, meanwhile, is looking likely to settle at about 2.5%, aligning with the mid-point of the Reserve Bank of Australia’s target range. However, the RBA remains cautious. NAB is predicting two more rate cuts by February next year, bringing the cash rate to 3.1%. There is also optimism that Australia’s reliance on government spending will lessen, with an invigorated private sector leading a new growth phase.
NAVIGATING GLOBAL HEADWINDS
While Australia remains sensitive to external developments, the economy seems to be turning the corner. Earlier this year, markets were fretting about the impact of the Trump tariffs and global trade disruption. While the long-term implications of American trade policies remain unclear, the US economy continues to tick along, and concerns about a full-blown trade war are diminishing.
Australia is well placed to weather any international volatility. We have largely avoided punitive US tariffs, inflation is under control, and the RBA has the capacity to cut interest rates as a stimulus measure if it so chooses. In short, the worst seems to be behind Australia, and there are some encouraging dynamics for the economy as it enters the second half of the year. As high-income households continue to increase discretionary spending and weigh up smart investments, there is a growing sense of optimism.
REVIEWING PORTFOLIO STRATEGIES
With conditions stabilising, asset allocation is again the focus for sophisticated investors. Equity markets, including the S&P 500, have enjoyed an extraordinary run, and key stock exchanges are sitting on or near record highs. As a result, the risk-reward equation for investors has shifted, and it may not be the right time to go hard on equities.
Our colleagues at JBWere are advocating for more defensively positioned portfolios, adding that fixed income generally offers attractive risk-adjusted returns. While pockets of value remain in equities, especially in healthcare and energy, there is a risk of being overweight in this asset class, and any new equity exposure requires careful consideration.
This applies to offshore allocations too, with JBWere cautioning against rushing into US-dollar assets after a decade or more of equities outperformance. Bringing capital home or targeting underweight options such as Japan, Europe or emerging markets may deliver better value. For instance, Southeast Asia continues to appeal, with strong demographic trends and favourable fundamentals creating long-term investment potential.
THE AI ‘ARMS RACE’
The latest data from global technology company Capgemini shows that the total wealth among Australian high net worth individuals rose 3.3% in 2024. With more money at their disposal, investors may increasingly consider opportunities in the artificial intelligence space—a theme that is dominating capital markets.
Some AI front-runners are engaged in aggressive capital expenditure across R&D and business development, in contrast to a few years ago when companies prioritised lean operations to generate healthy cash flow. This new AI ‘arms race’ has created an environment that is ripe with opportunity, but not without risk. The burden of proof is on firms to demonstrate to investors that the vast sums of money being spent are likely to yield decent returns.
History tells us that only a few winners emerge from periods of aggressive expansion, with the rest often struggling to compete. During the next 18 months, these AI and technology companies will need to validate their strategies through strong financial performance.
HIGH-END PROPERTY IN FAVOUR
There has been a clear upswing in luxury property sentiment on the back of sustained house price growth and recent RBA rate cuts. New records for property sales around Australia, including existing dwellings and yet-to-be-built penthouse apartments in Sydney and Melbourne, highlight the confidence in the luxury property market.
Top earners appear to be allocating more capital to prestige real estate, viewing the asset class as a long-term wealth builder and a hedge against inflation. Such interest is being reinforced by likely changes to superannuation tax rules. The Australian Government’s move to lift
taxes on super balances exceeding $3m is prompting some individuals to diversify wealth outside traditional retirement accounts, with premium property emerging as a preferred option. The segment is proving resilient, with declining borrowing costs and strong foreign capital inflows expected to support ongoing strength in high-end real estate markets.
TEMPERED EXPECTATIONS
While much of the hysteria around US trade policy has started to die down, it is worth acknowledging that economies and investors are experiencing historically unusual events. With this in mind, we do need to keep an eye on markets and any left-field developments, or what we economists like to call ‘non-linear effects.’
US fiscal conditions remain concerning and have the potential to unsettle global markets, and we do seem to be living and investing in a world that is less stable and more fractious than in the past. Amid brightening domestic conditions, there is still a need for vigilance and for investors, the importance of diversification, flexibility and robust risk management may be greater than ever.
This article has been prepared by National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686 (NAB). The information contained in this article is gathered from multiple sources believed to be reliable as at August 2025 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, property, financial and taxation advice before acting on any information in this article. JBWere Limited ABN 68 137 978 360 AFSL No. 341162 (JBWere) is a wholly owned subsidiary of NAB. JBWere’s obligations do not represent deposits or other liabilities of NAB. NAB does not guarantee its subsidiaries’ obligations or performance, or the products or services its subsidiaries offer. You may be exposed to investment risk, including loss of income and principal invested. ©2025 NAB Private Wealth is a division of National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.