Where Not to Invest in Australia Right Now

The overnight Dow rally lifted spirits across global markets, with the ASX following suit this morning.​

The 650+ point bounce came on hopes of a December rate cut from the Federal Reserve, with traders now pricing in an 85% probability of easing next month.​

Good vibes.

But then the ABS inflation data came in.

The juxtaposition between a relatively buoyant US market and the realities of the Australian economy is striking.

It reminds me of what US President Bill Clinton’s advisor James Carville famously said:

“It’s the economy, stupid!”

But in Australia, we do everything backwards — so the phrase may as well read:

It’s the stupid economy.

Today I’ll break down the inflation numbers and some flow-on effects to our ailing economy.

I call it the ‘dysfunction trade’, and it relates to:

• Aussie manufacturing
• AI data centres
• Gas developers
• Real estate exposures

Let’s start with inflation.

Too high, no cuts

Australia’s October CPI printed at 3.8% year-on-year — well above the 3.6% forecast.

The monthly trimmed mean inflation rose to 3.3%, up from 3.2% in September.​

This is the first complete Monthly CPI from the ABS, and it’s not a pretty debut.​

The October data looks to have eliminated the possibility of near-term rate cuts.

In fact, some economists are now refusing to rule out a rate hike.​

The electricity elephant

Unsurprisingly, electricity was the villain of the piece.

Electricity costs rose a staggering 37.1% in the twelve months to October, up from 33.9% in September.

Much of this reflects state government rebates being exhausted and the lumpy timing of Commonwealth Energy Bill Relief Fund payments.​

But strip out the rebate distortions and electricity prices still rose 5.0% — reflecting annual price reviews from energy retailers in July.​

Here’s the rub.

We keep hearing that renewables are the cheapest option. And yet prices keep rising. The energy transition’s promise of abundant cheap power remains elusive.

If the government finds itself in a tight spot on energy (the ACCC warns potential shortfalls from as early as Q4 2025 with supply gaps throughout 2026), it might…

Gasp! Do what it actually said it would do all along: support natural gas projects.​

Queensland gas sleepers

There are some potentially strong options in the Queensland gas developer space worth watching.

Elixir Energy [ASX: EXR] is a gas exploration and development company with a ~$59 million market cap. The company holds 100% interests in its Grandis Gas Project in the Taroom Trough, plus 50% working interests in two additional permits via a Santos farm-in deal.​

Comet Ridge [ASX: COI] has a ~$126 million market cap and is also focused on developing natural gas resources for the supply-constrained east coast market. Its flagship Mahalo Gas Hub in Queensland contains 676 petajoules of gross 2P reserves and 2C contingent resources, located near the Gladstone LNG export precinct.​

Gas prices have rocketed from $5/GJ a few years ago to between $12–14/GJ today.

Yet the market continues treating these companies like yesterday’s news.​

The second-order effects

If energy price rises are here to stay, let’s not even pretend Australian manufacturing will ever come back.

Australian manufacturing has shrunk to around 5% of the economy — the lowest share in the OECD.​

Energy costs, skills shortages, trade risks and productivity difficulties have combined to drive manufacturing into recession. Energy prices would be the cherry on top, sapping the new economy.

AI data centres follow cheap electricity

In Tasmania — which has some of the cheapest wholesale energy costs in the country thanks to hydropower — I can see an AI data centre in the distance from my house.

The state offers 100% renewable electricity, lower ambient temperatures, and low natural disaster risk. Companies are flocking there for a reason.​

In other states, though, there will be barriers to developing the infrastructure to wedge ourselves out of the productivity crisis.

Invest in dysfunction

As a result of the inflation, I’m sceptical of anything to do with property exposure in Australia, because we might not get rate cuts.

I note the following:

• Private investment was 18.6% of GDP at the start of 2025, down 1.4 percentage points from 2005.
• New capital expenditure is about 3% lower than it was in 2015.
• OECD analysis suggests Australian business investment is roughly 30% below the level implied by current economic conditions, the third‑worst gap among advanced economies.

So you might be better off making bets on the dysfunction at this stage — like a bullish bet on natural gas developers.

Or better yet, invest in companies with assets and projects domiciled overseas.

There are tonnes of great overseas assets listed on the ASX.

And remember, the major miners have always been global plays. The difference now is that Australia’s domestic economy is increasingly a drag on returns rather than a tailwind.

The dysfunction trade might just be the smart trade.