Stronger growth and stickier inflation are lifting the outlook for Australia’s resources sector, even as the risk of Reserve Bank of Australia (RBA) rate hikes increases.
Core inflation is running at 3.3%, above the RBA’s 2–3% target band, but history suggests this is not a reason for investors to panic – especially in resources.
Macquarie equity strategist Matthew Brooks notes that Australian shares have typically risen in the year before the RBA starts lifting rates. Looking at the five tightening cycles since the early 1990s, he finds the market posted gains in all five, with a median return of nearly 8% in the 12 months leading up to the first hike.
“The same rise in growth and inflation that drives the RBA to hike also drives stronger earnings growth,” Brooks says – and resources stocks stand out as key beneficiaries.
Good news for miners?
Mining companies tend to benefit from stronger economic activity, offer a hedge against rising inflation and are less exposed to valuation pressure when bond yields push higher.
Smaller resources names have done even better historically, with gains of 16–21% in previous pre-hike periods. Among larger miners, Brooks highlights Rio Tinto, Pilbara Minerals and South32, while in gold he points to Northern Star, Genesis Minerals and Perseus Mining.
Financials also generally fare well in this phase of the cycle, with ANZ and NAB among the preferred banks, and Credit Corp, Australian Finance Group and Zip singled out in broader financial services.
By contrast, early-cycle sectors such as retail and consumer discretionary tend to lag as investors begin to question whether the best of the upswing has already passed. Real estate investment trusts and traditional defensives also usually underperform ahead of rate hikes.
Brooks does not view the current backdrop as stagflationary, noting that “unemployment is still relatively low” and that higher inflation is partly a by-product of stronger growth.
He had previously expected the next RBA tightening cycle to begin in the second half of 2026, but now sees the risk of earlier rate hikes as having increased – a shift that, on past form, keeps the resources sector well-positioned.