It’s been an underwhelming year on the ASX. Will 2026 be any better?
Australian investors have pulled out of tech companies in the second half of 2025, but fund managers and analysts say AI will continue to make waves for share markets next year after a volatile 12 months that left the local stock market lagging behind its global peers.
In the New Year’s Eve trading session, the ASX200 was on track to return 6.1 per cent for the year, trailing Wall Street’s S&P500, which was up nearly 17 per cent, as well as similar indexes in the UK, Germany, Japan, Canada and Hong Kong, which were up more than 20 per cent.
As geopolitical conflicts intensify and US President Donald Trump scares the world with widespread tariffs in 2025, investors have pulled out of traditional growth sectors such as healthcare and technology, flocking instead to safe commodities like gold.
Since the beginning of the year, the healthcare sector has lost nearly 25 percent of its value, while information technology companies have lost 22 percent of their value, while gold prices have increased by more than 60 percent over the year, while Northern Star, the country’s largest gold miner, has increased by 72 percent.
Jun Bei Liu, founder and fund manager of Ten Cap, says that while it is difficult to see gold prices continuing to rise at a dizzying pace, resource companies should continue to perform reasonably well.
‘This is not a surprisingly bad outcome.’
Gemma Dale, NAB director of investor conduct
“This will be supported by commodities such as copper and aluminum due to the requirements arising from the energy transition and even iron ore with China coming back steadily,” he says.
Meanwhile, he says it’s also been a tougher year for technology and healthcare companies.
“In November, we saw a significant amount of selling in technology companies even though they were delivering great results,” he said, referring to software company Technology One. “There were also a few big companies, like healthcare giant CSL, that cut earnings and really disappointed investors.”
Liu says this partly reflects these companies’ failure to manage expectations, but it also reflects investors being more impatient than in the past when it comes to companies failing to meet expectations.
NAB director of investor conduct Gemma Dale said the Australian share market ended the year on a weak note but the situation could have been much worse.
“It’s not such a bad outcome,” he says, given the geopolitical risks and trade tensions throughout the year, concerns about whether consumers can handle rising interest rates, and the fact that banks, which make up about 30 percent of the market, were already “performing extraordinarily tough” going into this year.
The financial sector, including banks, completed the year with a 7 percent increase. Its performance is crucial to the wider market as it accounts for more than a third of the ASX.
There has been a broad shift in funds towards defense companies this year amid geopolitical tensions, Dale said. Defense contractor Electro Optic Systems is up sevenfold over the year, and shipbuilder Austal’s share price has more than doubled.
Investors sold DroneShield’s shares in October and November following a huge rally earlier in the year, but the company’s shares ended the year up more than 300 per cent, making it the best-performing company on the ASX200.
DroneShield’s shares have fallen by more than half from record highs in October and November after the company’s top executives sold all their shares without explanation. The sales follow a huge rally at the start of the year, supported by a number of major contracts; This means the drone defense company is the best performer on the ASX 200, finishing the year up over 300 per cent.
“Obviously, when a company operates there can be some governance issues. [like DroneShield] It’s going from very small to quite large very quickly, but it’s been interesting to see how many people are interested in it and happy to venture into it,” says Dale.
Liu describes 2025 as “a year of two halves,” starting with Trump’s tariffs earlier in the year that dampened investor sentiment.
“Tariffs have created a pretty rare buying opportunity in a market where investors are selling everything,” he said. “When we recalibrated, the stock market had one of its strongest returns from the bottom.”
The session following “Emancipation Day” on April 2, when Trump implemented sweeping tariffs, was the most active day for trade, Dale said. However, this selling activity turned into a “relief rally” as the tariff announcements were later withdrawn.
“It’s pretty impressive how quickly markets were happy to ignore all the previous very dramatic announcements,” he says.
While shares of many technology companies sold off significantly in the second half of the year due to concerns that valuations may have risen too high, Liu says they now present good value opportunities for investors.
“I think tech companies will make a steady comeback,” he says. “Because ultimately these are companies supported by the drivers of structural growth.”
He also says that artificial intelligence will continue to be an important theme next year.
“In the last few years, investors’ interest has been driven by companies directly involved in AI infrastructure, such as data centres,” he says, “But I think it will be about which companies will benefit from AI investments from 2026 onwards, and sectors that are currently predominantly manual but can go digital and see cost efficiencies.”
Jessica Amir, market strategist at trading platform Moomoo, says strong demand for AI and chips means prices of inputs such as gold, silver and platinum will continue to rise.
“Platinum demand is increasing from the automotive, industrial and jewelery sectors,” he says. “And as the price of the metal increases, investment demand for platinum increases.”
He also notes that there may be further decline in the AI sector in the short term due to concerns about the technology, but it will likely be the strongest growing sector by 2030.
Capital.com’s senior financial market analyst Kyle Rodda said differences in central bank policies around the world will also play an important role, with markets expecting the Federal Reserve to raise interest rates again next year, while borrowing costs in other major economies have fallen or remained stable.
“That will be another reason why I think we will underperform our global competitors next year,” he says.
“It will soon be a world of higher prices, lower growth and therefore a less prosperous economy and lower returns.”
The Business Briefing newsletter delivers big stories, exclusive news and expert insights. Sign up to receive it every weekday morning.
Millie Muroi is the economics writer for The Sydney Morning Herald and The Age. He was previously an economics correspondent for the Canberra Press Gallery and a banking writer in Sydney.Connect with: excitement or email.
