Theme 5 - Conviction 7 out of 10
Where the earnings are
Global company earnings are forecast to grow 33.1% in 2026. Australia's are forecast at 7.7%. That gap is why client portfolios lean offshore.
Share prices follow earnings over time, and earnings growth is strongest outside Australia. The US has just delivered record quarterly earnings, and emerging markets are growing faster still, led by the Korean and Taiwanese businesses at the centre of the AI supply chain.
Emerging markets: growth at a discount
Emerging markets are not only growing faster, they are also cheaper. Their forward price to earnings ratio relative to developed markets sits at a record discount, well below its long-run median. Strong earnings at a lower price is the combination we look for.
Why Australia is selective
The Australian market is concentrated in banks, miners and a small number of large companies whose earnings outlook is modest relative to their valuations. Australian shares remain important for income and franking credits, so client portfolios keep them, focused on energy, resources, mining services, insurance and select industrials.
| Asset class | Merit view |
|---|---|
| International shares | Overweight |
| Alternatives | Overweight |
| Infrastructure | Neutral |
| Cash | Neutral |
| Fixed interest | Selective |
| Australian shares | Underweight |
| Listed property | Underweight |
Merit strategic asset allocation views, September 2026.
Value leads the next leg
In an inflationary world, established businesses can lift prices while holding costs, and higher bond yields weigh most on the most expensive shares. We are rebalancing international exposure towards value managers, with emerging markets, Japan and Asia alongside, and Europe held as the region with most to gain if the conflicts ease.
How is your portfolio positioned?
Merit clients can talk through these themes at their next review. Call 1300 827 439 or email jim@meritfp.com.au.
More from the September update
- Built for the world we are entering
- Energy security: a structural shift, not a trade
- The biggest capex boom in history
- Income in a higher-rate world
- Sophisticated investor status: what it opens up
This information is general advice only. It has been prepared without taking into account your objectives, financial situation or needs, so before acting on it you should consider whether it is appropriate for you and speak with your adviser. Past performance is not a reliable indicator of future performance. Forecasts are estimates by third parties and may not be achieved. Views are those of the Merit-Morgans Partnership Investment Committee and are current at the date of publication. Merit Financial Services Pty Ltd is a Corporate Authorised Representative (No. 416822) of Paragem Pty Ltd, AFSL 297276. Unit 41/280 New Line Road, Dural NSW 2158. Research, dealing and administration are provided by Morgans Financial Limited, ABN 49 010 669 726, AFSL 235410. Financial Services Guide.