Ten Cap shifts focus to stock valuations
Australian investment manager Ten Cap is shifting focus away from macroeconomic forecasts, arguing that stock-specific valuations now matter more than predicting rate cycles. The firm’s latest outlook suggests markets have overemphasized broad economic trends while ignoring whether individual companies are fairly priced for current conditions.
CEO Jason Todd said the emphasis on guessing when central banks will pivot has distracted investors from the fundamentals. “You have to step back from the macro,” he noted.
The firm acknowledges risks in Australia’s economic slowdown, but it views current forecasts as already accounting for most downside. Defensive sectors like staples and utilities could face pressure if valuations become more rational, particularly in stocks like Woolworths, which is trading on a high earnings multiple for a consumer staple.
Rising bond yields are seen as a return to normal levels rather than a signal of impending crisis. Ten Cap also downplayed the Reserve Bank of Australia as a leading indicator, calling it a lagging factor. Portfolio manager Jun Bei Liu said interest rates will likely peak within six to twelve months, making the RBA’s moves less relevant for near-term investment decisions.
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Despite broader growth concerns, Ten Cap expects the ASX to outperform the US market in 2027, citing limited exposure to AI concentration and the RBA nearing its peak rate. Todd said the chances Australia outperforms the US equity market are quite high. The firm predicts leadership will shift beyond defensive sectors as economic conditions improve, though not immediately.
Ten Cap’s strategy involves gradual exposure to parts of the market discounted for high rates, weaker housing, and softer consumption. It maintains a bottom-up, long/short discipline. Healthcare, Codan’s defence-communications tailwind, Ansell’s pricing power and data-centre-related demand, and selected quality compounders whose valuations have compressed despite stable earnings expectations are current areas of enthusiasm. Codan and Ansell are among Ten Cap’s “strong conviction calls”.
Ansell, a healthcare stock, benefits from consistent pricing power and a shift to higher-margin products.
Liu emphasized that share prices ultimately follow earnings over the medium term, guiding the firm’s stock-specific approach.
