After last week tipping the local market would finish with “mid-teen” returns as tailwinds build, Ten Cap has doubled down, declaring Australia a safe haven for equity investors.
In a market note on Friday, Ten Cap lead portfolio manager and co-founder Jun Bei Liu said while the global backdrop remains noisy, with tariff tensions, geopolitical conflict and commodity volatility, Australia’s resilience, policy outlook and exposure to key structural themes are helping it stand out.
“I think investors will be surprised by how resilient the Australian market is to ongoing risks and volatility,” she said, reinforcing Ten Cap’s expectation that the Australian market has the potential to gain a further 5 to 10 per cent this year.
“We expect mid and small-cap companies to have an even better year than some of their large-cap counterparts,” she said.
The firm identified domestic cyclicals as another area that should do well, with early signs of housing recovery becoming more pronounced and consumer sentiment improving.
“Domestically, we are very confident that policy rates are coming down. For cyclical areas, whether it be consumer or interest rate-sensitive areas, that’s generally a very positive driver,” Liu said.
Looking ahead to the August earnings season, she said the earnings environment is expected to “begin to bottom out”, adding that “valuations won’t be a barrier to further upside”.
Ten Cap’s co-founder and chief investment officer, Jason Todd, added that while the US is “kicking own goals,” “we think Australia can avoid the worst of these drags”.
This week, the Australian sharemarket rose around 2 per cent, led by IT, health, property and telco shares.
Commenting on its growth, AMP’s Shane Oliver said the strong US lead, along with increased confidence that the Reserve Bank will cut rates in August, propelled the domestic sharemarket higher.
Looking forward, Oliver said: “Shares could push further into record territory on hopes for trade deals this month as July is normally a strong month.”
However, he warned that the renewed tariff escalation, threats to Fed independence, worries about the US fiscal outlook and signs of softer economic growth could see a renewed sharemarket correction into the seasonally weak months of August and September.
Oliver did offer a silver lining, adding that beyond the “messy near-term”, shares should benefit on a 6–12 month view.
Ten Cap bullish on equities in general
Ten Cap remains bullish on equities in general and views the April pause in US tariffs as a turning point in global investor sentiment.
“Since then, we’ve ridden the wave higher without the accompanying fear of doing something wrong,” Todd said.
“We have an optimistic outlook on the macro backdrop and from an equity perspective, whether it is international or domestically, we think the market will be meaningfully higher by year end. If you’re not long, you need to get long, and we think you just stay long until (and if) we see these risks amplify.”
Todd explained that ongoing tariff concerns and conflicts don’t change Ten Cap’s views, adding that equities are predicted to “continue climbing a wall of worry through the second half of 2025”.
“Maybe not in a straight line but certainly with an upward bias. Equity markets are showing a high degree of resiliency through their repeated ability to absorb downside risks, and we think this is a solid base for further gains as we move into the second half of the year,” he said.
On the whole, Ten Cap said investors should be overweight equities, unless they observed risks increasing.
Earlier this month, Todd flagged impending rate cuts as a key driver of optimism in the domestic market. But just days later, the Reserve Bank surprised many by holding the cash rate steady.
“If neutral is around 3.00 per cent and rates are currently at 3.85 per cent, then we think households should expect at least another 100 bps of easing but likely more if rates need to fall back into an easy setting,” Todd said at the time.
The firm did not clarify on Friday whether its expectations for the RBA have shifted since, but its continued bullish stance on local equities suggests they have not.
