US uncertainty fuels Australia’s ‘safe haven’ | Australian Markets

New market commentary from an Australian boutique equities specialist has dispelled considerations held by the consensus over inflated equity valuations and as a substitute pointed to their potential to climate ongoing draw back dangers. 

The chief govt and Co-Founder of Ten Cap, Jason Todd, mentioned the fund supervisor has parted from the consensus within the perception that equity markets are capable of face up to the present dangers they’re going through, together with unstable trade and tariff negotiations, ongoing geopolitical tensions, fluctuating commodity costs and “widespread distrust” within the current rally.

“We took the view that when US President Trump paused the implementation of tariffs on April 9, that was the peak in uncertainty. Since then, we’ve ridden the wave higher without the accompanying fear of doing something wrong,” Todd mentioned.

“We have an optimistic outlook on the macro backdrop and from an equity perspective, whether or not it’s worldwide or domestically, we predict the market will likely be meaningfully larger by 12 months finish. If you’re not long, you need to get long, and we predict you simply keep long till (and if) we see these dangers amplify.

“We expect equities 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.”

According to Ten Cap’s Lead Portfolio Manager and fellowCo-Founder, Jun Bei Lui, mentioned a mixture of “earnings upside and earnings multiple expansion” are set to fuel a sturdy efficiency for the rest of the 12 months for Australian equities, significantly because the US continues to wrestle via uncertainty

“I think investors will be surprised by how resilient the Australian market is to ongoing risks and volatility. We expect mid and small cap companies to have an even better year than some of their large cap counterparts,” she mentioned.

“Domestically, we’re very assured that coverage charges are coming down. For cyclical areas, whether or not or not it’s client or rate of interest delicate areas, that’s usually a very constructive driver. Our portfolio stays obese key beneficiaries of this, with investments in JB Hi-Fi, REA Group, Seek, and Universal Store, the place we see a clear path to earnings upgrades as confidence improves.

“For instance, JB Hi-Fi has been that compounder that continues to ship, regardless of the patchy retail surroundings for the final 4 months. We consider the company will proceed to drive growth over the following 12 months, with the anticipated fee cut from the RBA an added tailwind for the company. Analysts typically miscalculate forecasts on working leverage, whether or not on the upside or draw back, so when earnings are upgraded and income numbers begins to improve, the consensus nonetheless underestimates how a lot earnings improve will come via.

“We think the earnings environment will begin to bottom out this August reporting season and we’ll start to see some positive leverage. Valuations are not going to be a constraint for upside.”

“The US is kicking own goals and outside of a recession, we think Australia can avoid the worst of these drags. While valuations are elevated, we have repeatedly argued that they are not a constraint to the domestic equity market trading higher, particularly when cyclical tailwinds are building,” Todd mentioned.

Bei Lui additionally confirmed the firm has participated in a number of IPOs this 12 months, of their efforts to “back high-quality businesses early” and showcase pockets of alternative for traders.

“Virgin emerges from restructuring with a leaner cost base, improved margins, and a clear strategic runway. It is also good for Qantas to have some listed competition,” she mentioned.

“GemLife has a proven operating model and clear demographic tailwinds. We see significant potential for scale and margin expansion over time.”