The Australian share market’s record rally is expected to stall in 2026 as large-scale funds shift investments to overseas markets. MST Marki forecasts the S&P/ASX 200 index to end next year at 8,600 points, slightly below its current level. This projection is based on an expected slowdown in cisternal money inflows, leading to a pullback in prices.
Super funds have significantly boosted sharemarket growth over the past two years, managing about $3 trillion of Australia’s $14.1 trillion pension pool. These funds have been investing around £50 billion a year in the asset class, and drove the ASX 200 above 9000 points in October. However, MST’s senior research analyst Hasan Tufik suggests that reduced demand from these super funds and increased share volume will weigh on the market in 2026.
Despite an expected recovery in the company’s earnings in fiscal 2026 — the first extension in four years — MST remains cautious. Tiffic notes that while a recovery in profits generally benefits Australian investors, current valuations are already high. Institutional funds invested just $5 billion in the ASX in the first half of 2025, while the sharemarket gained about $40 billion over the same period. According to MST, the supply-demand imbalance has been a key driver of abnormal prices for strongly held stocks.
In contrast, Macquarie is preparing for potentially higher interest rates, noting that cyclical sectors such as media, retail, and discretionary stocks have outperformed even before the RBA tightened monetary policy. However, UBS forecasts the share market to reach 8,900 by the end of next year, driven by a recovering mining sector and stable profit margins. Morgan Stanley is even more optimistic, forecasting a record ASX 200 of 9250, encouraged by a rebound in corporate profits and gains on Wall Street.
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