Boutique investment management company Ten Cap remains bullish on Australian equities, despite the recent rally.
Ten Cap chief executive and chief investment officer Jason Todd said the investment manager is challenging the perception that markets are complacent and has instead highlighted the resilience of markets.
“While valuations are elevated, we don’t think they present a barrier to further upside, especially if policy rates continue to decline and a US recession is avoided. Furthermore, corporate fundamentals remain robust and should improve through 2H25,” said Todd.
Todd noted that Ten Capp’s optimism does hinge on fundamentals keeping pace with market performance, or at least not deteriorating beyond the gradual slowdown anticipated in current economic and earnings forecasts.
Unlike the prevailing consensus view, however, which is fixated on downside risks, the investment management company believes the drivers of equity markets will strengthen in the coming six to 12 months. It expects global liquidity conditions to continue to improve as the US Federal Reserve steps up the pace of rate cuts and macroeconomic uncertainty to diminish amid progress in major trade negotiations.
“For Australia, provided global equity markets remain relatively stable, we think the local market will navigate reporting season uneventfully and begin to look towards an improving domestic outlook,” it said.
“With the RBA expected to resume interest rate reductions imminently, we are confident that domestic cyclical conditions are at or near their trough.”
Ten Cap outlined five key reasons it expects the ASX 200 to continue advancing including policy rate cuts.
“We expect the RBA to resume its rate cut cycle in the coming week, with the cash rate likely falling to around 3 per cent by year-end,” said Todd.
“We think it could be more given the RBA has always pushed real rates into negative territory during easing cycles. This trend provides strong support to rate-sensitive sectors, including property, retail, and discretionary consumer industries.”
The investment manager also listed earnings resilience as a reason for the equities rally to continue.
“Despite macroeconomic volatility, earnings performance has been resilient, reflecting healthier-than-anticipated results through the first half of 2025,” said Todd.
“Although consensus projects a -1.7 per cent contraction for FY25, outer-year growth expectations remain anchored around 5–8 per cent, a range we consider achievable.”
Todd also said while global growth is slowing, the base case still points towards a soft landing, given prevailing activity indicators.
“Mild economic weakness is anticipated in the US due to the unwinding of tariff-induced front loading of demand with some uptick filtering through to inflation,” he said.
“However, these risks are well-recognised by the market, suggesting a likely period of consolidation rather than a pronounced downturn. Furthermore, global equity flows continue to favour risk assets, demonstrated by sustained record foreign investment in US markets.”
He also noted that market momentum is shifting from large-cap defensives towards smaller caps and previously lagging sectors such as industrials, energy, and financials (excluding banks).
“We see stronger prospects for domestic cyclicals compared to global cyclicals, given the modest policy stimulus from China and persistent US housing sector weakness. Rotation is occurring with valuation discipline, enhancing the durability of this upswing,” said Todd.
Todd also highlighted that recent profit-taking has been concentrated among outperformers, rather than indicative of fundamental market weakness.
“The move towards defensive stocks and bonds does not represent broad-based risk aversion. While data disappointments are possible, they are unlikely to result in recessionary conditions,” he said.
Overall, Todd said Ten Cap remains positive on Australian equities with the combination of supportive policy settings, resilient earnings, and evolving market leadership providing a durable foundation for further gains.
“While risks persist – particularly surrounding earnings and economic delivery and political developments – the market has repeatedly demonstrated its capacity to adjust rapidly. The August reporting season, while important, is unlikely to be a pivotal test,” he said.
“Evidence of margin stability and incremental improvement in key sectors should be sufficient to sustain the rally towards year-end.”
