Australian listed property trusts

The Australian Listed Property Trust market faced a significant downturn in the first quarter of 2026, falling -16.4%. This correction was primarily driven by the pivot from the RBA and two interest rate increases, undoing most of the recent easing experience of 2025. The War in Iran further compounded the problems of sticky stubborn inflation pressures as it reinforced the expectation that higher interest rates are likely to persist for longer than previously expected.

As interest rates and bond yields rose the "risk-free rate" increased which technically reduced the net tangible asset (NTA) values of property portfolios.

While large retail mall operators like Scentre Group (-19.1% over the quarter) faced pressure from rising rates, prime shopping centres showed some resilience due to relatively stronger retail sales and rental income that tracks inflation more closely (eg: Vicinity Centres -6.3%).

Global REITs were also impacted the War in Iran and declined in the month of March. However, as inflation is less challenging in other developed economies relative to Australia, Global REITs outperformed domestic REITs over the quarter with the hedged index delivering a positive return of 2.2%.

International shares

Global equity markets experienced a volatile start to 2026, recording a quarterly decline of -6.1%. This negative performance was primarily driven by a significant geopolitical shock in the Middle East that disrupted energy markets and triggered a hawkish shift in global monetary policy expectations.

The escalation of conflict between the US and Israel with Iran in early 2026 led to the effective closure of the Strait of Hormuz, a critical transit point for over 80% of Asia-bound oil and gas. Brent crude prices jumped 63% in March alone, the largest monthly increase in 40 years, reigniting global inflation concerns and the expected inflation spike caused a rapid repricing of interest rate expectations. This pressured equity valuations, especially in growth sectors.

Even before the Iran conflict, US software companies had been sold down aggressively (the sector down approximately -30%) as investors questioned long term viability of Software as a Service (SaaS) as expectations grew that AI technology would potentially eat into a large portion of the SaaS earnings.

The quarter saw a strong rotation from Growth investment style to Value, with Value outperforming the market and growth. Value outperformed Growth by 9.3% over the quarter as the energy shock and rising bond yields favoured defensive and commodity linked sectors.

The Australian dollar (AUD) declined against the major currencies in March, especially the US dollar, as investor sought the relative safety in US cash. The AUD still managed to strengthen relative to all currencies over the quarter, supported by rising domestic bond yields and strong commodity prices in January and February.

Australian Fixed interest

Bond markets experienced negative total returns during the first quarter of 2026. This performance was largely driven by a significant sell-off in government bonds as yields rose across the curve in response to a more hawkish RBA. Bond yield increases have an inverse relationship with bond prices, leading to capital losses for the index.

After seeing inflation and interest rates ease during 2025, the RBA quickly moved to a tightening monetary policy stance and delivered two consecutive 0.25% interest rate hikes by the RBA in February and March. The RBA’s pivot from its earlier easing stance by higher-than-expected inflation and robust domestic economic data forced a dramatic repricing of bond markets, as investors had entered the year still factoring in potential rate cuts.

Corporate Credit outperformed government bonds in January as credit spreads tightened. However, overall returns remained challenged by rising underlying base rates.

Cash

The benchmark for the Australian cash market rose during the first quarter of 2026 driven by a significant pivot to restrictive monetary policy by the Reserve Bank of Australia (RBA). Persistent and sticky inflation and resilient economic data triggered two consecutive 0.25% rate hikes in February and March bringing the official cash rate to 4.1% at quarter end.

Annual CPI Inflation came in at 3.8% in January and only slightly eased to 3.7% in February, remaining well above the RBA’s 2-3% target range. Significant contributors included housing and electricity (which surged 37% p.a. after the end of government rebates). Other domestic economic data also proved strong, with GDP growing strongly over the December quarter (+0.8%) and over the year (+2.6%). The labour market also continued to remain tight at 4.1%.

Rising oil and gas priced linked to the Middle East conflict between the US/Israel and Iran added new inflationary risks and pushed short term bond yields and bank bills rates higher in March.

Historical one and ten year returns

The chart below compares one and ten year returns for the major asset classes, as at 31 March 2026.