Institutional investors have lagged behind a powerful equity market rally, still adjusting to a sharp rebound that began in early April, according to Jun Bei Liu, lead portfolio manager at Ten Cap Alpha Plus.
“We think institutional investors are still catching up to the rally, and retail investors are looking for higher return assets,” said Liu in the firm’s Alpha Plus Monthly Update for May 2025.
“Rather than folding at the first sign of trouble, we think the market can stare down economic softening risks and finish 2025 higher than current levels.”
Markets have rallied strongly since 9 April, following US President Donald Trump’s decision to pause the implementation of reciprocal tariffs. Liu noted that this turnaround has come despite weakening macroeconomic and earnings fundamentals.
“It has left many scratching their heads given macroeconomic and earnings fundamentals have unquestionably weakened, yet equities are close to, if not back at record highs,” Liu said.
She attributed the rebound largely to a shift in investor sentiment, with the removal of the “bear case” from consensus and growing expectations for policy rate cuts – including from the Reserve Bank of Australia (RBA).
“The RBA is in the fortunate spot of facing less severe trade-driven inflation fears which should open it up to a more aggressive easing path if conditions warrant.”
Despite concerns that the market is beginning to look stretched, Liu believes that elevated valuations are more likely to result in a period of consolidation than a broad retreat.
“We think this drives a period of consolidation rather than a risk-off rotation.”
Australia, Liu said, remains better positioned than many other markets, with strong insulation from global trade tensions and potential upside from Chinese policy support.
“Australia remains well insulated from the global trade war and stands to benefit as China ramps up policy support to offset trade headwinds.”
The monthly update revealed that the Alpha Plus fund rose 5.39 per cent in May, outperforming the ASX 200 Accumulation Index by 1.19 per cent and taking its annualised net return since inception to 12.06 per cent, compared to 9.07 per cent for the benchmark.
“It was another strong month for the Alpha Plus portfolio where its pro-cyclical and growth tilts – added in early April – continued to outperform,” Liu said.
Liu noted that improved sentiment has led to a shift away from recession fears and into economically sensitive sectors, with easing inflation concerns and stabilising confidence in the AI trade supporting growth stocks.
Technology led gains in the Australian market, up 15 per cent, followed by energy, up 9 per cent, and strength across telecoms, retail, media and healthcare. Underperformance was limited to defensives like staples and utilities, and some laggards in pharmaceuticals.
Meanwhile, materials underwhelmed despite the broader rally, while banks outperformed, thanks to offshore demand pushing CBA to new highs, according to the report.
Despite signs that the market is “a bit toppy,” Liu stated: “We think this drives a period of consolidation rather than a risk-off rotation.”
