Mid-Year Outlook,
2026
Investing
5 min read
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The following article covers the salient points from our ‘Mid-Year Outlook 2026’ investor call. Asking the questions was Brigette Arnold Manaia, Head of Advice at Helm Wealth.
She was joined on the call by Bevan Graham, Economist at our sister firm Salt, as well as David Kandziora, CFA, CAIA, who is Helm Wealth’s lead Portfolio Manager.
Please note: The comments below do not constitute investment advice.
We’ve seen a very hostile first six months of the year. Can you tell us how the Iran conflict has changed the economic outlook for the second half of 2026?
Bevan: There’s certainly been a lot for markets to navigate in the first half of the year. It wasn’t that long ago that we were worrying about Venezuela and Greenland, as well as Cuba. However, amongst it all, the war in Iran has been the most disruptive, and the transmission mechanism of that disruption through economies and markets has been the higher price of oil.
This has had a stagflationary impact on economies in the near term, and how long this goes on for will depend on how long the war lasts. We’ve seen some good signs in recent days that an end is potentially in sight.
Looking to the long term, I think we have to recognise that the US and Israel have ushered in a whole new era of instability in the Middle East. Therefore, we shouldn’t expect oil prices to come back down any time soon to where they were before the war started.
How has the Iran conflict changed the outlook for monetary policy over the second half of the year?
Bevan: We’ve already seen higher fuel prices feed through immediately into higher headline inflation, but central banks typically look through a supply shock because there is nothing that they can do about it. For example, central banks can’t go back in time and change the price of oil. What they will be concerned about, however, is if those higher fuel prices feed through into more generalised inflation, as well as wage demand. If we start to see some of those second-round effects feeding through, then central banks will be pretty quick to respond. But at the same time, and just to complicate matters, we’re seeing slower growth which should ease inflation pressures. For central banks, it means that there is no easy answer which is why many will wait a bit longer to see how they need to respond.
A few weeks ago, interest rate cuts were expected in the US, but now they’re talking about hikes. Is this just about the war, or is something else happening that we need to know about?
Bevan: It’s not just the war that has changed that perception. The US Federal Reserve (Fed) has a dual mandate of targeting low and stable inflation, as well as maximum employment.
What has happened is that the labour market has started to look a bit better, meaning the focus has come back to inflation as being the biggest problem. And with the higher fuel prices, that’s why we’ve started to see the markets expecting the Fed’s next move to be a hike. But that said, we’re certainly not expecting a hike until later this year.
David, based on what we’ve heard from Bevan so far, what would you say have been the implications for asset classes? Let’s start with equities…
David: Regarding equities, we’re still mindful that valuations in parts of the US market remain higher than historical averages. However, corporate earnings have generally continued to support those valuations, and the broader economic backdrop still appears more favourable than what we’re seeing domestically.
That doesn’t mean we’re chasing markets higher. We’re remaining selective in where we allocate capital and focusing on businesses with strong earnings growth and resilient balance sheets.
One of the more interesting developments has been the renewed appeal of alternative asset classes. As investors navigate a world of persistent inflation, geopolitical uncertainty and potentially lower future returns from traditional markets, we’re seeing increasing interest in areas such as infrastructure, global private equity and hedge funds.
These asset classes can provide additional sources of return and, importantly, may offer diversification benefits because they’re often less correlated with traditional equity and bond markets. In the current environment, that diversification is becoming increasingly valuable from a portfolio construction perspective.
It’s interesting to hear about the robust health of US equity markets, and the struggles of NZ–listed stocks. Presumably that’s on your mind as you tilt portfolios in the months ahead?
David: Absolutely. Over the past year we’ve made a tactical shift towards global equities, both to improve diversification and because we currently see more attractive opportunities offshore.
That’s not to say there aren’t good companies listed in New Zealand, but when we look at the broader market, global equities offer access to a much wider range of sectors, stronger earnings growth, and businesses that are benefiting from some of the major structural themes shaping the global economy.
From a portfolio construction perspective, we don’t want investors relying too heavily on the fortunes of any one market or economy. Having exposure across multiple regions helps spread risk while also giving us access to opportunities that simply aren’t available in the local market.
Looking ahead, we think New Zealand may continue to face some economic and demographic challenges, while a number of international markets appear better positioned to deliver stronger risk-adjusted returns. As a result, we’re comfortable maintaining an overweight position to global equities while continuing to be selective in our New Zealand exposure.
What about bond markets so far this year? And what’s the outlook for the rest of the year, especially in light of Bevan’s earlier comments about interest rate trajectories?
David: Bond markets are also facing a few headwinds at the moment, driven not only by uncertainty around Iran and the outlook for central bank policy, but also by ongoing inflation pressures. You’ll notice that nobody is really talking about “transitory inflation” anymore, given that inflation has proven to be much more persistent than many expected.
We’re hopeful that a sustained reopening of the Strait of Hormuz could help ease some of those inflationary pressures, particularly through energy markets, but the reality is that inflation is likely to remain a challenge for some time yet. That’s why we’ll be watching the inflation data at the end of June very closely, along with how the Reserve Bank responds to it.
The last set of inflation figures didn’t fully capture the economic impact of the conflict in Iran. This next release will give us a full quarter of data to assess, providing a clearer picture of how those pressures are flowing through the economy.
Importantly, the Reserve Bank is likely to focus on the medium-term inflation outlook rather than making any knee-jerk reactions to a single data release. They’ll be looking through some of the short-term volatility and asking whether inflation pressures are proving more persistent than expected, and what that means for interest rates and bond markets going forward.
Can you give us a quick download of what’s happened to gold and oil prices so far this year? And without trying to predict the future, how do you see that playing out over the rest of the year, broadly speaking?
David: It’s been another strong year for gold. Investors have continued to view it as a safe-haven asset amid geopolitical tensions, inflation concerns, and ongoing uncertainty around interest rates. As a result, gold prices are sitting at historically elevated levels after a very strong run over the past few years.
From our perspective, while gold still has a role as a portfolio diversifier, we’re less convinced about the return potential from these levels. Unlike equities, infrastructure or private assets, gold doesn’t generate earnings, cash flow or income, so ultimately investors are relying largely on price appreciation to drive returns.
Oil has been a slightly different story. We’ve seen periods of volatility throughout the year, particularly as markets responded to developments in the Middle East. More recently, with tensions easing and supply concerns moderating, prices have moved back towards more normal levels.
Looking ahead, we’d expect commodity prices to remain somewhat elevated and potentially volatile as geopolitical risks and inflation pressures continue to work their way through the system. However, rather than making large directional bets on commodities themselves, we generally prefer to gain inflation protection through investments in sectors with stronger long-term growth characteristics, such as infrastructure and certain alternative assets. In our view, those areas can offer a better balance between return potential, income generation, and inflation resilience.
If we focus on NZ for a moment, it’s been a tough few years for Kiwis and it doesn’t look particularly great at the moment. Why does economic growth at home feel like such hard work right now?
Bevan: It’s been a pretty tough time for the NZ economy. Every time we seem to get going, something seems to interrupt the improvement. When we look back at historical periods of growth for NZ, they’ve typically had two factors contributing to that growth – rapid house price appreciation that delivers a wealth effect, and strong population growth. Over the last few years, both of those things have been missing. We’ve been reliant on lower interest rates but of course while they’re lower than the pandemic highs, they’re still not low.
We don’t think things are going to change any time soon, with this recovery likely to remain pretty hard work for the foreseeable future.
With that in mind, will the Reserve Bank really be able to start raising interest rates soon with activity already so weak?
Bevan: Their mandate is inflation, so they don’t actually have a growth mandate, but they also need to balance the risk of higher inflation with the fact that growth is still pretty weak.
Even though growth is weak, however, there could still be an appetite to raise rates. We saw that in May with the split decision to hold interest rates. There were three votes for a hike and three votes for a hold.
So, higher interest rates are coming but I think they can wait for a bit longer, with September this year being when we may start to see them hike.
One final question about the looming NZ elections – what are your thoughts on that battle with economic conditions in mind?
Bevan: You’ve got to love a good election! Both of the main parties support the fundamentals of macroeconomic stability, so I think that makes NZ elections a little less risky for markets than in jurisdictions where the politics are more polarised, such as the US and some parts of Europe. That’s a good news story.
In terms of what I think the battle grounds are going to be, it will be on economic growth. Jobs will be critical, as will the cost of living and policies to relieve some of those pressures.
Each party understands the fiscal constraints that NZ operates under and the markets are watching very closely. Any signs of increased spending or lower taxes that don’t have an offsetting mechanism, will be dealt to pretty harshly by markets.
My assumption is that the centre right coalition will return, but with a changed party make-up. Overall, I think the election will be pretty close which is interesting as this is just a first term government.
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