Richard Gluyas
24.09.2025
The nation’s growing appeal to investors as a relatively stable democracy with sound economic fundamentals is attracting enhanced capital flows from around the world, potentially leading to a prolonged period of higher asset valuations.
NAB chief economist Sally Auld said investors were making favourable comparisons between Australia’s outlook for trend growth, low inflation, full employment and central bank independence against the less appealing credentials of other advanced economies.
“If you’re a global asset allocator, you’re looking around the world and thinking: ‘Well, Australia looks pretty good’,” Ms Auld said.
“Inflation is above target and growth is slowing in the US, the same thing is happening in the UK, and the German economy hasn’t grown in five-and-a-half years.
“Capital allocation decisions are not made quickly because investors don’t just cut and run out of a country, but there’s been a noticeable pick-up in offshore demand for Australian assets, particularly fixed income, in the last couple of months.”
The initial wave of capital redeployment could start with a bond maturity or a sale of equities in another country, eventually spreading to less liquid real assets such as infrastructure and property.
Strong capital flows have helped to drive the dollar higher against the greenback, up 11% since an early April low.
Ms Auld said she was “surprised” the currency is not even higher.
“In the sort of world we’re talking about, I would have thought it should be closer to US70c than US65c,” she said.
“That’s why, if I was sitting offshore with the dollar at US65c, I’d think most Australian assets are pretty cheap because the one thing you know about currencies is that they tend to revert to the mean over time.
“The average for the dollar is about US75c so even if nothing happens to the value of the asset, you could make 10% or more just on the currency appreciation.”
Ms Auld said in a note last June that a new era had dawned in capital markets.
The previous era, which began in the late 1970s to early 1980s, had given way around 2015 to a new regime characterised by significant long-term changes in the global economy, politics and financial markets.
The prior regime, she said, featured a multi-decade decline in interest rates and mostly low and stable inflation.
Both provided a significant boost to the value of real assets, including equities, property and infrastructure.
There was also a peace dividend, enabling governments to redirect some of their defence spending, and the dominance of liberal democracies in western economies, particularly the US.
“It was a world in which gains to capital outpaced gains to labour,” Ms Auld said.
“We posit that it was this dynamic – inequality in the distribution of gains of globalisation – which sowed the seeds of regime change.”
The world was now starkly different in the era of Brexit and the first Trump presidency.
Many countries were looking inward, placing national and economic security at the top of their agendas, with governments drawing on old measures such as industrial policy and economic statecraft – tariffs, export controls and sanctions.
This would result in a less efficient organisation of global production and trade, leading to lower growth and, most likely, higher inflation, all things equal.
Tariffs were likely to lower US growth, inventories would be higher to secure supply of critical inputs and commodities, and investors would hold fewer US assets.
However, Ms Auld said the changes were likely to support demand for commodities and commodity currencies.
“In a world of more uncertainty – particularly as it pertains to supply chains, national interest, security alliances and energy supply – countries with a natural endowment of commodities (both soft and hard) are likely to be sought after,” she said.
“Shifting global alliances amid renewed national interest priorities are likely to mean less reliance on the US … (and hence less willingness to hold US dollar assets) and more appetite to look to other nations for mutually beneficial trading relationships.
“A final point on commodities – they look relatively cheap as an asset class.”
NAB Private Wealth and JBWere said portfolios should look quite different in the new regime.
A “regime friendly” portfolio could include more inflation protection; more exposure to commodities, energy and the Australian dollar; less exposure to US-dollar assets; more exposure to emerging markets, and less growth assets.
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