The world is fracturing and Australia faces some critical decisions - FY27 Outlook

The geopolitical and economic tides have shifted. Recent decades played out against a backdrop of globalisation, disinflation, falling interest rates, and above-normal equity market returns. That era is behind us, and the path forward looks vastly different.

This shift sits at the core of this special episode of Success and More Interesting Stuff, which brings together three leaders in equity investing, gold mining, and economics. 

The panel dives into the outlook for geopolitics, commodities, inflation, and equities - highlighting both the challenges and the unique opportunities ahead.

For Australia, the panel agrees the country faces critical decisions on navigating trade and defence alliances while remaining competitive on the international stage. These choices must be made at a difficult crossroads: economic growth is sluggish, and inflation remains stubbornly higher than the RBA would like.

Yet, there are clear reasons for optimism. Strong commodity prices - fuelled by heavy global spending on the AI buildout, defence, and electrification - play directly to Australia’s traditional strengths.

With so many moving parts, it is a fascinating time to step back and think long-term about the structural shifts influencing global economies and what they mean for capital allocation.

For this episode we’ve invited two of our most-popular guests from previous episodes who are joined by one of Australia’s leading economists.

The panel

• Jake Klein, Chairman, Evolution Mining (ASX:EVN)
• Paul Moore, Chief Investment Officer, PM Capital
• Jo Masters, Chief Economist, Barrenjoey Capital

Tune in for the full discussion via the players, or access a summary below.

Summary: Topic summaries and quotes curated by a Livewire editor with AI used for transcription. 

Geopolitics

Paul Moore: Believes the world is entering a prolonged inflationary and conflict-driven cycle. Because markets are at all-time highs despite these structural risks, investors should lower their risk profiles and hold cash reserves to act proactively during market downturns.

"My view is that given the golden period that we had... take it down a notch. Have something in reserve so that you can be proactive so that when the Iran war was a classic, markets go down, provide an opportunity..."

Jake Klein: States that the global order has fundamentally fractured ("ruptured"), bringing an end to the era of seamless globalisation. Australia has reached a critical inflection point where it must focus on secure supply chains, military readiness, and carefully balancing its economic relationship with China against its security alliance with the US.

"The world has ruptured and what does it mean for Australia as it goes forward and tries to navigate its future? ... we're not going to go back to globalisation. We're in a world which is separated, deglobalisation, and separate supply chains are really important."

Jo Masters: Views current geopolitical instability not as a temporary disruption, but as a return to historical norms following an unusually peaceful era. Deglobalisation acts as a "slow burn" that introduces friction, reduces productivity, lowers potential economic growth, and drives long-term structural inflation.

"It's a slow burn. And a way I think about it is each one of these events, we're just putting more sand in the cog of the wheel. And eventually the wheel just doesn't turn as efficiently. Doing business is harder, more complex, takes longer, costs more. All of these things ultimately are inflationary."

Commodity Prices

Jake Klein: Is highly optimistic about commodities due to secular demand from electrification, AI, data centres, and defence. He highlights gold as a proven store of value and a necessary alternative currency for global investors as US debt climbs.

"If you look at the key kind of global themes of electrification or renewable power, you think about AI and unfortunately, if you think about wars, they all require commodities. So I see a great outlook for commodities..."

Jo Masters: Confirms that gold benefits strongly from heightened geopolitical risks and the ongoing asset class diversification trend. Additionally, industrial and base metals are experiencing a structural shift in demand as they become deeply integrated with technology and innovation.

"Gold's an alternative cost. When I think about gold is you've got heightened geopolitical risk, which benefits gold... We're also seeing this recalibration about what we think about commodities globally and in Australia. these so-called industrial commodities are becoming more innovation, tech, AI related."

Paul Moore: Notes that while structural demand remains real, the commodity market is entering the tail end of its traditional 10-year cycle. If stock prices already reflect peak values, profits will stall. However, he notes that gold mining equities remain deeply undervalued relative to the spot gold price.

"These three capital cycles can continue and absolute demand can continue, but it doesn't necessarily mean you're going to make money out of commodities because if the share price has already reflected those high commodity prices, the game's over."

Inflation & Bond Yields

Jo Masters: Signals that the global rate-easing cycle has ended and central banks will likely introduce further rate hikes. Australia faces a particularly severe "inflation psychology" problem, where companies are rapidly passing cascading cost increases directly to consumers.

"Higher inflation is here to stay. And then in Australia, we absolutely have an inflation psychology problem. What we saw when oil prices went higher is Australian firms started passing on price increases pretty rapidly."

Jake Klein: Expresses deep concern over rising domestic labour costs, energy grid transition expenses, and union actions. He warns that these underlying domestic inflationary pressures are eroding Australia's global competitiveness.

"From an Evolution (ASX:EVN) perspective, a gold company, most of our costs are still labour... So if you're seeing that go up on a relative basis more than other countries, Australia's competitive position is getting less."

Paul Moore: Contends that inflation is permanently embedded and central banks will ultimately be forced to tolerate a higher inflation target (2.5% to 3%) to avoid destroying economic growth.

"The reality is they're just going to have to realise that... We do have a higher level of embedded inflation. So that probably means that we might have to be comfortable with two to three as long as it doesn't get above three on a permanent basis."

Financial Year 2027 Outlook

Jake Klein: Affirms that regardless of immediate stock market sentiment, gold mining operators will continue to generate massive cash flows and high dividend yields at current price ranges.

"Whether our share price reflects that or not is debatable, but as a company we couldn't be in a better space. Positive for gold, but even if it stays the same, we can make a tonne of money at these prices."

Paul Moore: Expects an intense rotation underneath the surface of the market. While mega-cap US tech and AI stocks show bubble-like valuations reminiscent of the late 1990s, substantial opportunities exist in overlooked sectors like healthcare, spirits, and European banks.

"The market's been in this rotation... there's this big divergence between parts of the market that look very expensive and a lot of the rest of the market looks pretty reasonable."

Jo Masters: Anticipates a period of sluggish headline GDP growth for Australia, but points out that underlying domestic final demand (driven by government spending, healthcare, and consumer activity) remains strong. She expects domestic rate cuts to be delayed until late 2027.

"So one message I would say is don't worry too much about GDP, worry about commodity prices and domestic final demand."

Reasons for optimism

Jake Klein: Remains highly confident in the exceptional quality of Australia's underlying resource assets and local corporate leaders, stressing that clearer government vision and tax incentives for entrepreneurs could unlock massive prosperity.

"Australia's greatest advantage is in the commodity space. It just needs some policy decision making and strategic vision... We have some amazing entrepreneurs - you just have to look at in the commodity space again, where people have been remarkably successful."

Paul Moore: Derives optimism from the sheer quantity of high-quality businesses globally that are currently trading at the bottom half of their historical valuation ranges, offering a fertile environment for active stock pickers.

"Underneath the surface, there's lots of things to look at... the thing that really stands out in the markets at the moment is just how many parts of the market are selling on very reasonable valuations."

Jo Masters: Focuses on the structural shift in private business capital expenditure, noting that Australian business investment is currently higher than it was at the peak of the mining boom. This structural investment in technology, data centres, and infrastructure could naturally resolve Australia's productivity slump.

"...today in Australia private business investment is higher than it was at the peak of the mining boom. So I'm excited to see that... it makes me hopeful that we can eke out a bit more productivity..."