ST Wong

The extreme divergence in performance within ASX sectors underlines the benefits of analysing investments at company level, according to ST Wong, Chief Investment Officer at Australian boutique, Prime Value Asset Management.

“There is a temptation to choose winners and losers at sector level for the year ahead – but there is a well-established current trend of bifurcation in performance within sectors, making a strong case for bottom-up analysis.

“For example, Myer has just downgraded while premium shopping centres are doing well, and consider the recent performance of CBA versus the rest of Australia’s banking industry.

“There is REA versus Domain in real estate classifieds, Coles versus Woolworths in the supermarket sector, and Medibank and NIB in health insurance.

“We are seeing more instances of certain companies increasing market share at the expense of their competitors.”

Mr Wong said many macro predictions have proven unsound recently. “Many commentators one year ago predicted the US could experience recession with aggressive interest rate cuts. But the US economy proved to be more resilient than anticipated.

“As we turn to 2025, there is potential for recovery in the Australian economy but there are questions about how investors can best take advantage in the year ahead.

“A large part of the index has been re-rated up substantially in the last two years – can it continue to post significant gains? The best opportunities look to be at ground level.”

Mr Wong said ASX companies which have invested heavily in their business are well placed, with some set to deliver over a longer term as they widen the gap with their competitors. “We like companies who have recently invested in their business, while operating in a strong market structure. For example, mining explosives specialist, Orica (ASX: ORI).

“Orica has invested heavily in the US market, and looks well placed against its competition with no new explosives plants expected to come into the market for the next five years.

“James Hardie (ASX: JHX) also looks promising, even while we expect the US housing backdrop to remain challenging in the near term.

“With best-in-class profit margins, James Hardie will benefit from a cyclical upside should the US housing market recover from its lows.”

ST Wong manages the Prime Value Opportunities Fund, which invests across the ASX, and has delivered 11.9% per annum net of fees for the year to 31 December 2024, and 9.8% per annum net of fees since inception in 2012.

Prime Value Asset Management was founded in 1998 and is part of an investment group including Shakespeare Property Group, managing around $3 billion in equities, income securities, direct property and alternative assets.

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