AMP Ltd (ASX: AMP) Chief Economist Shane Oliver is expecting the Australian share market to deliver returns of 8% this year and for interest rates to remain on hold, in a new investment outlook for 2026 published this week.
Dr Oliver said he also expected balanced growth super funds to return about 7%, and expected house price growth to slow to 5%-7%.
Returns defy global uncertainty
Dr Oliver said, despite a somewhat unsettled year just past, investment returns held up.
He added:
Despite uncertainty around US President Trump's policies, geopolitics and interest rates, 2025 saw strong investment returns on the back of falling interest rates, solid economic and profit growth globally and expectations for stronger profit growth in Australia. AI enthusiasm boosted US shares although they were relative underperformers globally. This saw average superannuation funds return around 9%. This is the third year in a row of returns around 10% and over the last five years, they returned 7.7% pa.
Dr Oliver said there were several reasons to be wary on the investment front this year, including that share valuations remain "stretched relative to history, with US shares offering little risk premium over bonds and Australian shares not much better''.
Other areas of concern included the surge in AI shares, which "shows some signs of being a bubble'', risks to the Chinese economy, and the fact that some central banks are at or close to the bottom when it comes to interest rates.
Interest rates to stay on hold
In terms of Australian rates, Dr Oliver said he believed interest rate increases would likely not come until 2027.
He wrote:
In Australia we expect some fall back in underlying inflation to allow the RBA (Reserve Bank of Australia) to avoid rate hikes, but it's a close call.
Geopolitical risk was also expected to remain high, and Dr Oliver said the mid-term elections in the US were historically associated with pullbacks in the market.
The Ukraine war is yet to be resolved, problems with Iran could flare up again with a possible US military strike, US tensions with China could escalate again, political uncertainty will likely be high in Europe with the rise of the far right, the US intervention in Venezuela could turn bad for the US (and may be interpreted as a 'green light' for China and Russia to act in their own spheres of influence). Trump's grab for Greenland threatens the NATO appliance. And the midterm elections in the US are often associated with share market volatility with an average 17% drawdown in US shares in midterm election years since 1950. This is arguably evident in Trump's increasingly erratic and populist policies.
Dr Oliver expects Australian economic growth to come in at 2.2%, and profit growth in Australia to come in at 10% after three years of falls.
