December 31, 2025 • 6 mins
Australian equities have come back toward fair value... but that doesn’t mean every sector is attractive. Sean Aylmer speaks with Morningstar equity market strategist Lachlan Halloway about why Morningstar now sees the ASX as fairly valued, where the opportunities are starting to emerge, and which parts of the market still look expensive.
This is Fear & Greed's summer series - all-new short episodes every day, with regular business news back from January 12. All information is general in nature. If you want to invest, we recommend you visit a financial advisor who can tailor investments to your needs.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:03):
Welcome to the Fear and Greed summer series. I'm sure, Ailman.
During the past four months the local share market has
generally underformed other major indices. So as we head into
twenty twenty six, does that mean the ASEX two hundred
is a buying opportunity? Lachland Halloway is an equity market
strategist at morning Star. Lachland, welcome back to Fear and Greed.
Speaker 2 (00:22):
Thanks Holley Michean.
Speaker 1 (00:23):
In morning Star's latest Market Outlook report, you say Australian
equeries are now fairly valued. That's exactly not what we'd
throw in the front page of a newspaper or on
a website. Lachland, But are you sort of saying that
it's time for investors to pay a bit of attention
to the ASEX two hundred.
Speaker 3 (00:40):
I think so yar look fairly valued might not be
a complete show stopper as a headline, but I think,
in contrast I've been saying to you over twenty twenty five,
I think it is a meaningful shift. We've seen Ozzy
equities as overvalued for most of twenty twenty five, notwithstanding
the cell off during April Liberation Day. We had that
(01:00):
roaring ball market out of that, and equities we thought
got quite divorced from the fundamentals. Now, this sort of
late twenty twenty five sell off where the banks st
are to come off the boil, which probably is justified
by the fundamental side of the picture, plus a bit
of the heat that's come out of AI and it's
billed over into our market, has brought things back closer
(01:22):
to where we think the fundamental support lies. So OSSI
equity is fairly valued for one of the few times
of twenty twenty five, which is a good starting point
for investors versus where they were even in sort of
August twenty twenty five, where things look pretty expensive.
Speaker 1 (01:39):
Okay, then the obvious question is where are the opportunities
on the AX right now?
Speaker 2 (01:45):
Yeah.
Speaker 3 (01:45):
Look, energy has and still is one of the more
attractively priced sectors we see on the ASX.
Speaker 2 (01:52):
I think a few things to say about that.
Speaker 3 (01:54):
Obviously, the energy transition has sort of cast bit of
cloud over some of the big hydrocarproduce as late Woodside
and Santos.
Speaker 2 (02:01):
It has the entire energy sector.
Speaker 3 (02:03):
I think that when not so, Look is hydrocarbons are
going away? But I don't think as as quickly as
the share prices of these big energy majors imply. Gas,
particularly which is the main game for the two Aussie heavyweights,
is also I think has a reasonable outlook. We're expecting
pretty significant growth and gas as it replaces you know,
(02:24):
legacy coal fire power generations. So the demand picture looks
okay there on the pricing side, you know, we don't
think you know, oil at about sixty five dollars a
barrow long term is about where we see it. We're
expecting modest in a couple percentage point a year demand
declines in oil, but that has to be backfilled because
you get the natural decline in oil fields too at
(02:46):
the same time, and that's not going to happen unless
you have an incentive price.
Speaker 2 (02:49):
So sixty five bucks a bow about is closest. Today's
price looks about reasonable.
Speaker 3 (02:53):
And those assumptions, given where the multiples of these you know,
woodside centers are trading rock bottom applies on most growth.
Speaker 2 (03:00):
We think that's too verish.
Speaker 1 (03:02):
What about the flip side sectors that look expensive still,
we're the banks particularly.
Speaker 3 (03:07):
Yeah, the banks have to call them out as the
most overvalued sector still. That's been the case for most
of twenty twenty five, despite the fact that.
Speaker 2 (03:16):
Generally speaking, they've come off the boil.
Speaker 3 (03:18):
CBA, you know, it's falling about twenty percent in the
wake of its earnings result bear market territory. Would you
believe from one hundred and ninety dollars a share that's
probably healthy, I think given how far that stock could run.
You know, mid to low single digit earnings growth does
not usually justify a pev of thirty times, and if
(03:39):
you're paying a price to book multiple I think four times.
When CBO is at its peak, you really have to
expect very very very strong terms and equity, which what
isn't happening today and we don't expect happen in the future.
It's a great business, don't get me wrong, but not
not the sort of multiples you know at mag seven
light multiples that it was trading, So that still looks
(03:59):
expensive to us generally, although we are seeing more opportunities
as as as prices have come down across the market
across the ASX, which as I said, generally good for
investors who are who are looking for opportunities.
Speaker 1 (04:12):
So broadly, going into the next year or so, are
you expecting the market to rise. Where are the risks
that you're that you're keeping an eye out for.
Speaker 3 (04:22):
Yeah, look, I think the the on expecting it to rise,
look sort of it's hard to make a one year
ahead prediction, and I'd be cautious about getting getting into
that game, but sort of thinking a bit longer term,
sort of you know, maybe three to five years.
Speaker 2 (04:37):
Valuations are a pretty good guide.
Speaker 3 (04:39):
Of returns, and as I said, right now, as the
equities look about fairly valued, so implicitly we're saying you
can probably expect to sort of average return on Australian
equities over the next three years, let's say nine percent
or so total returns, which is again that's not that's
not anything like we've seen in the last few years,
very heady returns, but but it's a better style point
(05:00):
than we had for most of twenty twenty five. So
I think that's generally a good thing. The risks, I
mean as sort of the known unknowns. You know, we
know that inflation is going to be a consideration this year.
Which direction falls exactly, I think is a bit of
you know, this is the uncertainty monetary policy too as well.
But I think we've said in passing the podcast and
(05:20):
courtious about getting too fixated or on whether at Central
Bank mightin move this month or the next. It's tinkering
around the ages is probably not the main game for
equity investors. So I think those are the two things.
How AI and how investors perceive AI and XT to
you will almost certainly be a big part of the
story too.
Speaker 1 (05:37):
Laqulin, thank you for talking to Fear and Greed summer series.
Speaker 2 (05:40):
Thanks for having me se on.
Speaker 1 (05:41):
That was Lockerwann Halloway, equity market strategist at Morning Star
Fear and Greed. It's not a financial advice podcast. If
you want to invest, we recommend you visit a financial
advisor who can tailor investments to your needs. Don't forget
tip follow on the podcast. Youw episodes every day during
our summer series. I'm sure Nayelma and this is Fear
and Greed
Welcome to the Fear and Greed summer series. I'm sure, Ailman.
During the past four months the local share market has
generally underformed other major indices. So as we head into
twenty twenty six, does that mean the ASEX two hundred
is a buying opportunity? Lachland Halloway is an equity market
strategist at morning Star. Lachland, welcome back to Fear and Greed.
Speaker 2 (00:22):
Thanks Holley Michean.
Speaker 1 (00:23):
In morning Star's latest Market Outlook report, you say Australian
equeries are now fairly valued. That's exactly not what we'd
throw in the front page of a newspaper or on
a website. Lachland, But are you sort of saying that
it's time for investors to pay a bit of attention
to the ASEX two hundred.
Speaker 3 (00:40):
I think so yar look fairly valued might not be
a complete show stopper as a headline, but I think,
in contrast I've been saying to you over twenty twenty five,
I think it is a meaningful shift. We've seen Ozzy
equities as overvalued for most of twenty twenty five, notwithstanding
the cell off during April Liberation Day. We had that
(01:00):
roaring ball market out of that, and equities we thought
got quite divorced from the fundamentals. Now, this sort of
late twenty twenty five sell off where the banks st
are to come off the boil, which probably is justified
by the fundamental side of the picture, plus a bit
of the heat that's come out of AI and it's
billed over into our market, has brought things back closer
(01:22):
to where we think the fundamental support lies. So OSSI
equity is fairly valued for one of the few times
of twenty twenty five, which is a good starting point
for investors versus where they were even in sort of
August twenty twenty five, where things look pretty expensive.
Speaker 1 (01:39):
Okay, then the obvious question is where are the opportunities
on the AX right now?
Speaker 2 (01:45):
Yeah.
Speaker 3 (01:45):
Look, energy has and still is one of the more
attractively priced sectors we see on the ASX.
Speaker 2 (01:52):
I think a few things to say about that.
Speaker 3 (01:54):
Obviously, the energy transition has sort of cast bit of
cloud over some of the big hydrocarproduce as late Woodside
and Santos.
Speaker 2 (02:01):
It has the entire energy sector.
Speaker 3 (02:03):
I think that when not so, Look is hydrocarbons are
going away? But I don't think as as quickly as
the share prices of these big energy majors imply. Gas,
particularly which is the main game for the two Aussie heavyweights,
is also I think has a reasonable outlook. We're expecting
pretty significant growth and gas as it replaces you know,
(02:24):
legacy coal fire power generations. So the demand picture looks
okay there on the pricing side, you know, we don't
think you know, oil at about sixty five dollars a
barrow long term is about where we see it. We're
expecting modest in a couple percentage point a year demand
declines in oil, but that has to be backfilled because
you get the natural decline in oil fields too at
(02:46):
the same time, and that's not going to happen unless
you have an incentive price.
Speaker 2 (02:49):
So sixty five bucks a bow about is closest. Today's
price looks about reasonable.
Speaker 3 (02:53):
And those assumptions, given where the multiples of these you know,
woodside centers are trading rock bottom applies on most growth.
Speaker 2 (03:00):
We think that's too verish.
Speaker 1 (03:02):
What about the flip side sectors that look expensive still,
we're the banks particularly.
Speaker 3 (03:07):
Yeah, the banks have to call them out as the
most overvalued sector still. That's been the case for most
of twenty twenty five, despite the fact that.
Speaker 2 (03:16):
Generally speaking, they've come off the boil.
Speaker 3 (03:18):
CBA, you know, it's falling about twenty percent in the
wake of its earnings result bear market territory. Would you
believe from one hundred and ninety dollars a share that's
probably healthy, I think given how far that stock could run.
You know, mid to low single digit earnings growth does
not usually justify a pev of thirty times, and if
(03:39):
you're paying a price to book multiple I think four times.
When CBO is at its peak, you really have to
expect very very very strong terms and equity, which what
isn't happening today and we don't expect happen in the future.
It's a great business, don't get me wrong, but not
not the sort of multiples you know at mag seven
light multiples that it was trading, So that still looks
(03:59):
expensive to us generally, although we are seeing more opportunities
as as as prices have come down across the market
across the ASX, which as I said, generally good for
investors who are who are looking for opportunities.
Speaker 1 (04:12):
So broadly, going into the next year or so, are
you expecting the market to rise. Where are the risks
that you're that you're keeping an eye out for.
Speaker 3 (04:22):
Yeah, look, I think the the on expecting it to rise,
look sort of it's hard to make a one year
ahead prediction, and I'd be cautious about getting getting into
that game, but sort of thinking a bit longer term,
sort of you know, maybe three to five years.
Speaker 2 (04:37):
Valuations are a pretty good guide.
Speaker 3 (04:39):
Of returns, and as I said, right now, as the
equities look about fairly valued, so implicitly we're saying you
can probably expect to sort of average return on Australian
equities over the next three years, let's say nine percent
or so total returns, which is again that's not that's
not anything like we've seen in the last few years,
very heady returns, but but it's a better style point
(05:00):
than we had for most of twenty twenty five. So
I think that's generally a good thing. The risks, I
mean as sort of the known unknowns. You know, we
know that inflation is going to be a consideration this year.
Which direction falls exactly, I think is a bit of
you know, this is the uncertainty monetary policy too as well.
But I think we've said in passing the podcast and
(05:20):
courtious about getting too fixated or on whether at Central
Bank mightin move this month or the next. It's tinkering
around the ages is probably not the main game for
equity investors. So I think those are the two things.
How AI and how investors perceive AI and XT to
you will almost certainly be a big part of the
story too.
Speaker 1 (05:37):
Laqulin, thank you for talking to Fear and Greed summer series.
Speaker 2 (05:40):
Thanks for having me se on.
Speaker 1 (05:41):
That was Lockerwann Halloway, equity market strategist at Morning Star
Fear and Greed. It's not a financial advice podcast. If
you want to invest, we recommend you visit a financial
advisor who can tailor investments to your needs. Don't forget
tip follow on the podcast. Youw episodes every day during
our summer series. I'm sure Nayelma and this is Fear
and Greed
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