Operation Economic Outcast: the Iran war enters a new phase

The Islamabad Memorandum that provided the framework for a US-Iran ceasefire lapsed on 17 August with no replacement in place. What exists now is an undeclared suspension: fragile, unnamed, and terminable by either side without notice. Against that backdrop, on 24 August, US Treasury Secretary Scott Bessent announced what the Trump administration is calling an “economic D-Day.” Operation Economic Outcast is a sweeping sanctions package targeting approximately 60 companies, individuals and vessels alleged to have enabled the Iranian regime, alongside a broader threat: secondary sanctions against any country that continues doing business with Iran.

The sanctions cover Iran’s oil trade, shipping, cryptocurrency, gold markets, and aviation sector. A number of mainland Chinese and Hong Kong intermediaries are named. Crucially, major Chinese banks were excluded from the initial action. The restraint appears deliberate: a Trump-Xi summit is reportedly in preparation, and sanctioning China’s largest financial institutions would risk destabilising global financial markets in a manner the administration is, at least for now, unwilling to absorb. Bessent confirmed publicly that China is not exempt from secondary sanctions, giving countries a timeline to “remedy bad behavior” while declining to specify when enforcement would follow.

The China dimension: risk and opportunity

Before the war, China purchased approximately 90 per cent of Iran’s exported oil, accounting for roughly 12 per cent of China’s total crude imports. That relationship has continued through the conflict, making China the primary economic lifeline for Tehran and the primary target of US secondary sanction pressure. China’s foreign ministry response was pointed: Beijing “firmly opposes” the unilateral sanctions, stated that its cooperation with Iran is consistent with international law, warned that economic warfare would “only further intensify tensions and conflicts,” and declared it would “take all necessary measures to firmly safeguard its own rights and interests.” That last phrase is diplomatic language for retaliation, and markets are watching closely to see what form it takes.

The nature of any Chinese response matters significantly for Australian investors. China has been building alternative international payments infrastructure through its CIPS system, reducing reliance on US dollar clearing. If Washington escalates to sanctioning major Chinese banks, Beijing’s most likely near-term responses involve accelerated use of CIPS for trade settlement, restrictions on technology and rare earth exports to the US, and potential pressure on US Treasury holdings. None of those scenarios are benign for global markets, particularly in a world already navigating elevated energy costs and persistent inflation. It is also worth noting that Atlantic Council experts have observed that without meaningful action against China’s banking sector, Operation Economic Outcast may have a more limited impact on Iran than the “economic D-Day” framing implies. The market, for now, appears to be reading it the same way: oil prices actually fell slightly on the day of the announcement before recovering.

Where we see an opportunity

The headlines around China are almost uniformly negative at the moment, and that negativity is reflected in valuations. Chinese equities are trading at significant discounts to developed market peers on most standard measures, and Chinese fixed income offers yields that are compelling relative to the risk profile, particularly at the government and investment-grade corporate level. When geopolitical sentiment around a market is at its most pessimistic and domestic investors in that market are under pressure, that is frequently when patient, longer-term investors find the more interesting entry points.

We are conscious that China’s economic challenges are real and that the political risk is genuinely elevated. But we are also conscious that the market tends to price current headlines rather than medium-term fundamentals. China’s domestic consumption story, its technological development in areas like electric vehicles, renewable energy, and advanced manufacturing, and the sheer scale of its economy mean that a portfolio with zero or minimal China exposure is making a significant active bet against one of the largest economies in the world. That is a position worth examining.

For a number of our clients, we are currently reviewing whether adding exposure to Chinese equities and debt makes sense as part of a broader portfolio conversation. This is not a blanket recommendation: whether any China exposure is appropriate depends entirely on your individual risk profile, time horizon, existing portfolio construction, and financial objectives. But it is a part of the current investment landscape that we think deserves a proper conversation rather than being dismissed on the basis of news flow alone.

Shield and First Guardian: the government responds, and what it means for how we work with you

On 19 August, Assistant Treasurer and Minister for Financial Services Daniel Mulino delivered the government’s formal response to the collapses of the Shield and First Guardian managed investment schemes. Around 12,000 Australians invested more than $1.1 billion in retirement savings into those schemes before they failed. The losses were caused by what ASIC described as “industrial scale misconduct”: high-pressure lead generation tactics, conflicted advice, and governance structures that separated trustees from the investment platforms they were supposed to oversee. None of that reflects how Koombana Financial operates, and it is worth saying that directly.

Koombana Financial is a boutique, relationship-driven practice. Every client who comes to us does so through a referral, a direct approach, or a professional relationship built over time. We do not cold call. We do not use lead generators. We do not have any financial interest in directing you toward a particular product. Our income comes from the advice relationship itself, and where commissions are paid on insurance products, we disclose that fully and obtain your informed consent as required by law. The contrast with what happened at Shield and First Guardian could not be more clear.

What the reforms involve

A ban on unsolicited lead generation calls. Cold calling was the primary mechanism that brought thousands of Australians into Shield and First Guardian. That practice is now being banned for retirement fund products. For clients of Koombana, nothing changes: we have never operated that way.

Stronger APRA oversight of managed investment schemes. The collapses exposed a structural regulatory gap that Shield and First Guardian exploited. New prudential-style oversight will extend to managed investment schemes operating within the superannuation ecosystem, closing that gap. The investment platforms and structures we use with clients are already subject to robust regulatory oversight, and we will continue to monitor how the new framework develops.

Improved access to affordable advice. Mulino confirmed the government will proceed with a restricted new adviser class under the Delivering Better Financial Outcomes reforms, allowing superannuation fund members to access more affordable intra-fund guidance at the fund level. This sits alongside, not instead of, the kind of comprehensive, independent personal advice that Koombana Financial provides. If anything, it creates a more informed starting point for people who eventually want to engage a fully licensed adviser for a complete financial plan.

Compensation Scheme of Last Resort reforms. The CSLR exists to compensate consumers when a financial services firm cannot meet a determination against it. The Shield and First Guardian collapses have placed significant pressure on the scheme, and the government has flagged changes to its funding and sustainability as part of the package. As a properly licensed practice operating under Alliance Wealth’s AFSL, Koombana Financial contributes to the overall integrity of the advice ecosystem that the CSLR exists to backstop.

A reminder of what comprehensive advice actually covers

One of the consistent findings from reviews of the Shield and First Guardian collapses is that clients lacked an independent, trusted relationship with an adviser who understood their complete financial position. That is precisely the gap that Koombana Financial exists to fill. A full advice engagement with us covers superannuation structure and contributions strategy, investment portfolio construction and review, insurance adequacy across life, TPD, trauma, and income protection, debt management, retirement income planning, estate planning considerations, and tax-aware structuring across all of the above. We coordinate with your accountant and solicitor where that serves your interests. We review your position at least annually, and we are available between reviews when circumstances change.

If you have family members or friends who experienced something uncomfortable with a financial product in recent years, or who have simply never had a proper financial plan in place, we would be glad to speak with them. An initial conversation carries no commitment. The contrast with the kind of conduct that made headlines this month tends to be immediately apparent.

Today’s inflation data: hotter than expected, and the trimmed mean still will not move

The ABS released the July monthly CPI this morning, and it came in hotter than expected. The headline figure was 3.5 per cent annually, down from June’s 3.8 per cent. The market had expected a sharper fall, to between 3.2 and 3.3 per cent, driven by a large fuel price increase from July 2025 dropping out of the annual calculation. The actual result at 3.5 per cent beat all four major bank forecasts. On a monthly basis, the CPI rose 1.0 per cent, the fastest monthly pace in four months.

The more important number is the trimmed mean, which strips out volatile items to give the RBA’s preferred read on underlying inflation. It held at 3.6 per cent annually for the third consecutive month. On a monthly basis it rose 0.5 per cent, well above forecasts and above the RBA’s own projected track. The AUD rose sharply on the release, and the probability of a rate hike at the September meeting jumped from around 17 per cent to 36 per cent. The probability of at least one further hike before February 2027 is now 94 per cent. The largest annual contributors were housing at 5.0 per cent (driven by electricity, rents, and new dwelling construction), food and non-alcoholic beverages at 3.2 per cent, and recreation and culture at 2.6 per cent. These are not primarily energy-linked or temporary categories.

The RBA’s August decision, and what the September meeting could look like

The RBA held the cash rate at 4.35 per cent at its August meeting on 11 August, unanimously. That was the second consecutive hold after three rate increases earlier in 2026. The minutes from that meeting confirmed the board actively discussed whether to hike in August before concluding that existing forecasts showing inflation below the target midpoint by 2028 did not support an immediate move. The board was explicit, however: it is prepared to raise rates further if upside risks to inflation materialise. RBA Assistant Governor Sarah Hunter acknowledged after today’s release that housing and services inflation “remain persistent.”

The next meeting is September 28 to 29. The RBA had expected the trimmed mean to begin easing by this point. Instead it has held at 3.6 per cent for three months, and the monthly momentum is running above the board’s own projected track. A fourth hike in 2026 is a live possibility, not a tail risk, and the data coming through in September will be the deciding factor.

Global markets: US resilience, diverging central banks, and a watching brief on China

US equity markets have continued to perform strongly through August, led by technology and AI-related earnings. The S&P 500 has broadly held the gains made during the post-ceasefire rally in June, with energy sector volatility the main headwind as Brent crude swung between $70 and $94 per barrel. Technology sector earnings have remained the dominant theme, with major companies reporting results that justify the sector’s elevated valuations at least on a near-term basis.

The Bank of Japan raised its policy rate in August, the Nikkei hit a record high on the day before the stronger yen weighed on exporter earnings. European central banks have held steady, with the ECB in a markedly different position to the RBA: eurozone inflation is easing more quickly, which gives the ECB room to consider cuts in the second half of the year. That policy divergence is keeping the Australian dollar under some pressure relative to the euro, and could create upward movement against the yen as rate differentials shift.

China’s economic data through August has been soft. Industrial output growth has disappointed, the property sector remains under stress despite ongoing stimulus, and export growth has slowed as US tariffs continue to divert trade flows. Chinese equity markets have significantly lagged global peers. For Australian investors, this matters primarily through the commodity channel. Iron ore prices have been more resilient than the weak Chinese data might suggest, partly because infrastructure spending has supported steel production, but the medium-term picture for Australian resources remains one of gradual softening as China’s economy rebalances away from construction-led growth.