Quarterly Market Comment

As an active fund manager, Octagon Asset Management prioritises high-quality research as an input to decision making. It draws on research from a range of sources, local and global. This includes research provided by Forsyth Barr. Below is its most recent Quarterly Market Comment.

For the quarter ended 30 June 2026

• Investment markets were broadly positive over the quarter, with global shares leading the way. The MSCI World Index rose 13.8% in local currency terms and 14.9% in New Zealand dollar terms, helped by a softer Kiwi dollar, which boosted offshore returns for New Zealand investors.
• The US market led the global gains, with the S&P 500 up 15.2% over the quarter. The recovery was supported by resilient corporate earnings, ongoing enthusiasm around artificial intelligence, and easing fears that the March energy shock would become a sustained global growth scare.
• Australian and New Zealand shares also rose but lagged the broader global rally. The New Zealand market gained 5.5% over the quarter, while Australian shares advanced 4.0%, with both indices held back by smaller relative weightings to the technology sector.
• Fixed income also delivered solid returns as inflation concerns eased and longer-term yields fell back over the quarter. NZ investment-grade corporate bonds returned 2.4%, and NZ government bonds returned 3.2%.

Middle East shock moves into the rear-view mirror

With the Middle East ceasefire holding and energy prices retreating over the quarter, investors were able to look past the March shock and refocus on company fundamentals. Shares rallied across most major regions, with the US and Japanese markets particularly strong, and the rebound extended to bonds as longer-term yields eased once the worst-feared inflation outcomes failed to materialise. It was a useful reminder that markets can react sharply to fast-moving news but also recover — often just as quickly — when the worst-feared outcomes do not eventuate.

Major equity market indices returns (indexed to 100 on 1 Jan 2026)

Source: Refinitiv, Forsyth Barr analysis

Global equity indices are increasingly concentrated in a handful of tech giants

One striking feature of this year’s rally has been just how much of it has been driven by a small group of very large technology companies. The so-called ‘Magnificent Seven’—Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta, and Tesla—now account for roughly a third of the entire S&P 500, with a combined market value of around US$22 trillion. Widen the lens to the 10 largest companies and they make up close to 40% of the index. That is a higher degree of concentration than at the peak of the late-1990s technology boom, and it means a broad ‘passive’ index fund is far less diversified than many investors assume.

However, unlike many companies during the dot-com era, today’s market leaders are highly profitable and generate a large share of global corporate earnings and cash flow. Their valuations therefore rest on firmer foundations.

Even so, the risks are real. These companies share many common traits: they are large, growth-oriented, and closely tied to the artificial intelligence theme. As a result, they often rise and fall together, which can amplify gains in strong markets and losses when sentiment turns. With enormous sums being invested in AI infrastructure, competition intensifying, and high expectations already reflected in share prices, a shift in sentiment towards just a few companies could have a meaningful impact on whole market indices.

The appetite for technology exposure was clear in June, when SpaceX listed on the NASDAQ in the largest initial public offering in history. The company raised around US$75 billion at a valuation of roughly US$1.8 trillion. Its shares jumped close to 20% on debut, although they gave back some of those gains in the following days. It was a remarkable milestone, but not without controversy. The company remains lossmaking, and analysts are divided on whether the valuation can be justified. AI model companies OpenAI and Anthropic are also reported to be weighing potential listings, which may add to the market’s concentration rather than reduce it. For most investors, the key is to make sure exposure to this theme is deliberate and appropriately sized, rather than simply an accidental result of holding a broad index.

Interest rate concerns ease

Interest rate expectations shifted materially over the quarter. When energy prices spiked, markets had begun to price in the risk that central banks would need to hike interest rates quickly to contain inflation pressures. As the ceasefire took hold and oil prices retreated, those fears faded somewhat.

In Australia, however, interest rates have already risen quickly this year. The Reserve Bank of Australia raised the cash rate by 25 basis points to 4.35% at its May meeting—the third increase this year—citing the need to bring inflation down. This weighed on parts of the Australian share market, particularly interest-rate-sensitive sectors such as property and consumer related companies.

In New Zealand, the Reserve Bank kept the Official Cash Rate at 2.25% at its May meeting. The decision was finely balanced, with the Monetary Policy Committee split 3–3 and RBNZ Governor Breman casting the deciding vote to leave rates unchanged. Interest rates are expected to move higher over the coming year, although the pace and scale of any increases will depend on how quickly the economy recovers from the oil price shock.

Central bank policy interest rates and market pricing (%)

Source: Bloomberg, ANZ, Forsyth Barr analysis 

Why diversification matters more than ever

This quarter provided a clear example of why spreading risk matters. The strongest gains came from US and Japanese shares, and particularly from the technology sector. But New Zealand and Australian shares still advanced, while bonds also delivered solid positive returns as yields fell.

A portfolio spread across regions, sectors, and asset classes can capture market gains without relying too heavily on any single driver.

That lesson is especially important given how concentrated global share indices have become. With a handful of technology giants now driving so much of the market, investors who rely on a single index may be taking on more risk than the word ‘diversified’ suggests.

Holding a genuine mix of investments—including bonds, which are offering increasingly attractive income opportunities, alongside listed property and infrastructure—remains one of the most dependable ways to participate in the recovery while helping to cushion the inevitable bumps along the way.

Matt Henry
Head of Wealth Management Research

Zoe Wallis
Investment Strategist 

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