MB Fund April 2026 Performance Report

The Two-Speed Economy: Look Beyond the ASX

We are living in a K-shaped global economy.

If you look at the consumer side of the equation—particularly in Australia—the picture is bleak. The RBA has pushed the cash rate to 4.35%, real wages have been going backwards for over a decade, and households are buckling under the weight of inflation and higher mortgage costs.

Yet, if you look at the global corporate sector, particularly in the United States, you see a completely different reality. The NASDAQ and S&P 500 are touching all-time highs.

We are witnessing an incredible corporate earnings boom, driven by massive capital expenditure in Artificial Intelligence and cloud infrastructure.

How do you invest in a world where consumers are broke, but corporations are posting record profits?

The Australian Dilemma: A Market of Rent Seekers

Let’s be honest about the structure of the Australian economy. It is highly dependent on two things: digging commodities out of the ground and selling houses to each other.

Over the last 15 years, aided by tax policies, high immigration, and regulatory support, Australia has blown a world-leading housing bubble. To keep inflation under control amidst these structural government policies, the RBA has only one blunt instrument: crushing consumer demand via interest rate hikes.

This macroeconomic environment is reflected directly in the ASX. Most of the market is dominated by what we call “rent seekers.” Banks lending money for mortgages, property trusts collecting rent, and utilities operating toll roads or pipelines. These companies aren’t building groundbreaking new technologies. They aren’t curing diseases or driving global productivity. They are clipping the ticket on existing economic activity. Add companies that are digging stuff out of the ground, and there is not much left. In Australia, rent-seeking sectors and resources make up roughly 70% of the stock market.

 In most other developed nations, that ratio is under 20%.

While Australian banks and REITs pay good dividends, betting that they can extract more and more rent from consumers and businesses is simply not the same as investing in innovative or productivity-driven growth.

The US AI Earnings Boom: Real Cash, Real Growth

Contrast the Australian market with what is happening in the US.

We are currently looking at US corporate earnings forecasts of 20%+ growth for 2026 and a little under 20% for 2027. Outside of the post-pandemic rebound and the 2018 Trump tax cuts, we haven’t seen earnings growth like this in decades.

And unlike the dot-com boom of the late 90s, where market valuations were driven by speculative capital raises and promises of future revenue, today’s tech boom is being funded by actual cash flow.

The tech giants—Google, Meta, Amazon, Microsoft—are no longer spending all their spare cash buying back their own stock. Instead, they are pouring billions into building the data centres and infrastructure required for the AI revolution.

Furthermore, AI is fundamentally altering the corporate cost structure. Major IT companies are laying off thousands of employees, yet their productivity is holding steady or increasing. Why? Because you can now replace junior staff with an AI subscription.

This is the K-shaped reality: Everyday consumers are feeling the pinch, but large corporations are expanding their profit margins. As an investor, you need exposure to that margin expansion.

The Unstoppable Energy Transition

It isn’t just technology that is shifting rapidly; the very foundation of global energy is undergoing a revolution that is “hockey-sticking” faster than most people realise.

For years, the argument against renewable energy was cost. That argument is now dead. Today, the cost of utility-scale solar paired with battery storage has fallen below the cost of generating electricity from coal or gas.

 

The Ukraine war and the ensuing energy shortage created a mad scramble for renewables. The Iran war is giving it a second wind.

Furthermore, the supply chain for this transition is scaling exponentially. With traditional infrastructure like coal or gas, you can build a 10 MW power plant in one year, but then you have to start from scratch to build the next one.

With solar and batteries, the factories are the 2nd derivative. A factory producing 10 MW of solar panels will produce another 10 MW next year. And here is what has been missed: the factories have already been built.

We have already seen extraordinary increases in global solar panel manufacturing capacity—so much so that installation and transmission simply cannot keep up with the supply. The chart of the “2nd derivative” looks like this:

 

So, when you look at the actual amount of power coming from those solar panel, the line is about to go vertical based only on the factories already built.

And even if you believe all of these solar factories will be shut down, countries are looking for local supply of energy. Energy security is a focus. If you are clinging to investment arguments about energy that were true five or ten years ago, you are going to get left behind. 

• Approach manufacturers with caution: The solar panel and battery manufacturing sector is difficult. It is heavily government-sponsored and subsidised, meaning it will not operate as a true “free market” for decades. As an investor, your gains in this space will largely depend on whether your domestic government or the Chinese government is feeling more accommodating at any given moment.
• Bet on the change: Stick with the service and infrastructure companies enabling the transition—the “picks and shovels” of the grid. These same companies will be involved extending the lives of existing power plants. The best plays in this sector tend to be international stocks like ABB or Schneider, but there will be some ASX stocks that benefit.
• The fossil fuel endgame: Legacy fossil fuel companies are likely about to make super profits in the short term, driven by underinvestment and supply constraints. Take those profits if you hold them, but be warned: the end is coming much faster than linear forecasts suggest. There is a good short-term argument to use these stocks as a hedge for the Hormuz Strait being closed. But it is not a forever bet.

The Geopolitical Wildcard: Oil and the Strait of Hormuz

Of course, the global economy isn’t without its dark clouds.

The single biggest risk to this ongoing corporate profit boom is a geopolitical shock—specifically, an escalation in the Middle East that shuts down the Strait of Hormuz.

Roughly 20% of the world’s oil flows through that narrow waterway. If it is closed, the global economy cannot simply substitute its way out of the problem. We would require massive “demand destruction.” To force a 5% to 10% reduction in global oil usage, oil prices would have to spike to $200 a barrel.

At that price, the economic pain becomes severe. Flights are grounded, freight costs skyrocket, and inflation goes rampant. If the Strait is genuinely closed, it has the power to derail the global economy and turn the current (consumer) slowdown into a deep recession.

However, if the situation remains ambiguous—if enough ships manage to navigate the region, or backroom deals are struck to pay unofficial “tolls”—then there is a path to muddle through. If India or China strike a deal with Iran, and fill their ships with Saudi or Kuwati oil, will the US blockade the ships? Oil prices would remain elevated, acting as a handbrake on growth, but probably not enough to stop the sheer momentum of the AI and tech earnings boom.

How to Position Your Portfolio

In a world defined by Australian domestic struggles, sticky inflation, and a US-led technological revolution, how should the savvy investor position their wealth?

1. Look Beyond Australia: The ASX is heavy with rent-seekers and light on genuine innovation. To capture the extraordinary earnings growth of the current decade, overweight international equities.
2. Embrace the AI Value Chain: You don’t have to buy the most expensive, hyped-up tech stocks. Look across the entire value chain—from the companies building the data centres, to the chip manufacturers, to the businesses leveraging AI to dramatically reduce their operating costs.
3. Acknowledge the energy transition:  Energy systems are changing. Countries no longer want to be dependent on a troubled Middle East or Russia (or a mecurial USA?). Battery and solar annual production has already grown exponentially. Existing energy is having its life extended.
4. Protect Against Sticky Inflation: We are moving into an era of higher nominal interest rates and lower real interest rates. Central banks will tolerate slightly higher inflation because they cannot afford to completely crush their heavily indebted economies. Protect your defensive allocations by utilising inflation-linked bonds rather than relying solely on traditional fixed interest.

The Asymmetry of Hope

The problem? The distribution of outcomes is not a neat bell curve. It’s a cliff.

• Upside: If a deal is struck, we are looking a markets that are a little expensive and extremely high earnings growth. A reasonable trade-off.
• Default course: We are in an interminable standoff of “almost” deals and extended deadlines. But, if enough ships get through, energy prices are high but not catastrophic, then there is a navigable path for stock markets.
• Downside: Extreme. At the other end of the spectrum lies $200+ oil and a deep, structural global recession as energy supply chains are physically smashed.

Net effect: Are we headed for the greatest corporate profit boom of our generation? Or a deep recession driven by rampaging energy prices.