Key takeaways
- AI infrastructure investing is broadening beyond chips and software into data centres, electricity, cooling and commodities like copper.
- The Greater Bay Area is shaping trade, technology, resources and capital flows, with Shenzhen hosting APEC in November 2026.
- Higher interest rates don't end the case for equities, but they do raise the hurdle rate for investment.
- After a 6% pullback, the ASX 200 is trading closer to our fair-value estimate. We're interested, but selective.
This article is general advice only. It does not take into account your personal objectives, financial situation or needs.
Introduction
When markets pull back and headlines shift daily, it's hard to know which themes will matter over the long term. Fresh back from Hong Kong, [Speaker name, title] spoke with Peter Switzer on Switzer TV about the conversations happening with business contacts and investors across Asia.
The feedback was remarkably consistent. Four themes kept coming up: the rise of AI infrastructure investing, the growing importance of the Greater Bay Area, the outlook for interest rates, and where opportunities may be emerging after the recent pullback in the Australian share market.
Here's what each theme means for Australian investors, and how we're thinking about them.
Why AI is becoming a physical investment story
AI may look digital on the surface, but it relies on a huge amount of physical infrastructure behind the scenes. That was the biggest takeaway from discussions with Asian investors.
AI is no longer simply a US technology or software story. Every AI model needs somewhere to run, power to run it, and systems to keep it cool. As a result, the investment theme is broadening from chips and software into the infrastructure that supports them.
The building blocks of AI infrastructure
What this means for Australian investors
This shift is particularly relevant for Australia. Our economy has significant exposure to resources, energy and infrastructure, which are exactly the areas AI depends on.
That said, a strong theme doesn't make every company a good investment. You still need to be selective and disciplined on valuation. Paying too much for a popular theme can erode returns, even if the long-term story plays out.
Why the Greater Bay Area matters to Australian investors
The Greater Bay Area is increasingly relevant to Australia through trade, technology, resources and capital flows. The region connects Hong Kong, Shenzhen, Guangzhou and surrounding cities into one of the world's most significant economic zones. It will be firmly in the global spotlight when Shenzhen hosts the APEC Economic Leaders' Meeting on 18 to 19 November 2026.
Asian interest in ASX-listed companies
At a resources conference in Hong Kong, there was clear interest from Asian family offices in ASX-listed companies, particularly in the resources sector. Family offices are private wealth firms that manage investments for high-net-worth families, and their attention is a useful signal of where international capital may flow.
In our view, Australia is well positioned to participate in the region's long-term growth. Our strengths in resources, services and our established economic links with Asia all support this.
What higher interest rates mean for your investments
Higher interest rates don't necessarily undermine the long-term case for equities, but they do raise the hurdle rate for investment. The hurdle rate is the minimum return an investment needs to deliver to be worthwhile. When rates rise, that bar moves higher.
On 16 September, the US Federal Reserve raised the federal funds target range by 25 basis points to 3.75% to 4.00%. Inflation remains an important consideration for monetary policy. Attention now turns to the Reserve Bank of Australia, with its next decision due at 2.30pm AEST on Tuesday, 29 September.
Which investments feel the most pressure?
Higher discount rates (the rate used to value future earnings in today's dollars) tend to weigh most heavily on:
- Highly valued companies, where share prices already assume strong future growth
- Leveraged businesses, which carry more debt and face higher borrowing costs
- Long-duration assets, where valuations depend on earnings expected far into the future
What matters more when rates rise
When the cost of capital increases, three qualities become more important: balance sheet strength, cash flow resilience and valuation discipline. Diversification across equities, fixed income and cash also remains an important way to manage risk.
Where are the opportunities after the ASX pullback?
Valuations on the ASX 200 have moved closer to levels we consider more attractive, but we're not looking to buy indiscriminately. The ASX 200 closed the week at 8,731, around 6% below its recent high of 9,296. Based on our fair-value framework, this leaves the market approximately 3.7% above our fair-value estimate of 8,419.
Our approach: constructive, but selective
We're becoming more constructive as valuations improve. However, we'd prefer to see market momentum stabilise before selectively considering quality companies trading at appropriate valuations.
The major banks are becoming more interesting following the correction, particularly from an income perspective. We remain mindful of margins, credit conditions and the impact of higher rates on borrowers.
Other companies we're monitoring include SGH, Sigma Healthcare, JB Hi-Fi and Infratil. We continue to assess these businesses on fundamentals, valuation and share price conditions before considering whether they represent attractive opportunities.
More broadly, our focus stays on quality businesses with strong balance sheets, sustainable cash flows and sensible valuations. Trying to predict the exact bottom of the market is rarely a reliable strategy.
Frequently asked questions
What is AI infrastructure investing?
AI infrastructure investing focuses on the physical assets that support artificial intelligence, rather than the software itself. This includes data centres, electricity generation and transmission, cooling systems and commodities such as copper. It's a broader way to gain exposure to the AI theme.
How can Australian investors benefit from the AI boom?
Australia has strong exposure to resources, energy and infrastructure, which AI relies on heavily. However, it's important to stay selective and focus on valuation rather than buying into the theme broadly. A financial adviser can help you assess whether this fits your goals.
What is the Greater Bay Area?
The Greater Bay Area is an economic region in southern China that connects Hong Kong, Shenzhen, Guangzhou and surrounding cities. It's an important hub for trade, technology and capital flows, with growing links to Australian resources and services.
Should I buy shares after a market pullback?
A pullback can bring valuations closer to fair value, but it isn't a signal to buy everything. We prefer to wait for momentum to stabilise and then consider quality companies at sensible prices. Your personal circumstances should always guide your decisions.
How do rising interest rates affect share prices?
Rising rates increase the return investors require, which can put pressure on share prices. Highly valued, heavily indebted and long-duration growth companies tend to feel the impact most. Businesses with strong balance sheets and reliable cash flow are often more resilient.
The bottom line
AI is creating demand for real-world infrastructure, and Australia's resources and energy strengths put us in a strong position. The Greater Bay Area continues to deepen its links with Australian markets, while higher interest rates are raising the bar for investment returns.
After the recent pullback, valuations are becoming more reasonable. Our approach remains the same: stay selective, stay disciplined on valuation, and focus on quality.
Want to understand how these themes could apply to your portfolio? Speak to a Morgans adviser today.
Thank you to Peter Switzer and Ausbiz for the interview. Watch the full interview on YouTube.
General advice warning
The information contained in this article is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this article, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this article consult with their Morgans investment adviser before doing so.
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DISCLAIMER: Information is of a general nature only. Before making any financial decisions, you should consult with an experienced professional to obtain advice specific to your circumstances.
