Reece Birtles
Australian equities delivered a strong performance in 2025, with the S&P/ASX 200 rising more than 10%[1]), supported by a falling interest rate environment and easing inflation pressures. Market leadership was defined by a rotation toward higher-beta exposures, while expensive growth stocks lagged, reflecting shifting macro conditions and changing investor preferences.
According to ClearBridge Investments’ head of Australian equities, Reece Birtles, the year marked an important inflection point for value-style investing, even as valuation dispersion across the market remains historically wide.
“We are still early in the process of value reasserting itself. The disconnect between share prices and fundamental valuation remains wide, but the market is starting to show classic signs that the momentum phase, and crowded, index-dominated growth names are losing their shine.
“Importantly, value-style stocks continue to be a low-beta, a lower-risk expression, providing fundamental earnings resilience in the current environment. Just as we saw during the Tech Bubble, in periods of exuberance rather than crisis, value provides downside protection precisely when euphoria unwinds.
“Despite this, many investors remain heavily skewed toward growth exposures, leaving their portfolios vulnerable if the full rotation toward value accelerates,” he notes.
Australia’s earnings outlook has also strengthened materially, particularly relative to offshore markets. He highlights a sharp turnaround in earnings per share (EPS) expectations following the August 2025 reporting season.
“We’ve seen significant upgrades to expected EPS growth, moving closer to double-digit territory,” Birtles says. “That has been concentrated in resources, driven by iron ore at the index level, but also supported by copper, gold, lithium and rare earths. We expect to see stronger commodity prices improve Australia’s terms of trade and drive nominal GDP growth. That’s a great predictor for the revenue, earnings and dividend growth of Australian companies more broadly.”
Importantly, Australian consumer confidence and business condition surveys are now showing stronger readings than their US counterparts.
“On a relative basis, Australia had been a laggard globally for EPS growth, but heading into 2026, it’s starting to look materially stronger.”
The widening valuation dispersion has created a fertile environment for active managers focused on quality and risk discipline, Birtles notes.
“Alpha and risk come from two things – stock selection and style risk. Given the extreme valuation spread within quality companies, this has been a very rich stock-picking environment for our style of investing.”
Among the holdings that have contributed positively across ClearBridge portfolios are ANZ Banking Group, Lynas Rare Earths, BHP Group, Ventia Services Group and Downer EDI.
The firm also sees continued opportunity in specialist income portfolios, driven by attractive valuations and accelerating dividend growth.
“We expect income portfolios to deliver compelling yields this year, with expected franked income and growth well above the broader market. The companies we invest in are attractively valued, yet they are growing earnings and dividends faster than the market. In contrast, many expensive technology names and passive darlings are offering little, if any, earnings or dividend growth,” Birtles says.
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