A Strategic Outlook on Markets, Opportunities, and Portfolio Positioning

As we enter the final quarter of 2025, our Investment Committee convened on 18 September to assess the current economic environment, portfolio positioning, and strategic opportunities for the months ahead. Amid a backdrop of elevated asset prices, inflation risks, and shifting macroeconomic drivers, the Committee remains focused on managing risk while selectively positioning for long-term growth.

Global Investment Landscape: Turning Points and Divergences

Commodities
One of the Committee’s strongest convictions is the emergence of a multi-year commodity super cycle, underpinned by global infrastructure investment, energy transition demands, and rising geopolitical fragmentation. We continue to favour exposure to iron ore, copper, and gold, each of which is supported by both structural and cyclical factors.

Copper in particular stands out, driven by supply deficits and electrification tailwinds. Gold remains supported by a weaker USD and persistent inflation. Uranium also remains a favoured thematic, with global sentiment shifting rapidly toward nuclear energy in the face of net-zero commitments.

Currencies & Bonds
The Committee expects continued downward pressure on the U.S. dollar, particularly as U.S. interest rate expectations soften and fiscal deficits widen. In contrast, long-term bond yields are trending higher globally, reflecting stubborn inflation and tighter fiscal conditions. We note Japan is beginning to normalise policy, which could shift capital toward emerging markets offering higher real yields, particularly in Asia and Latin America.

Regional Insights

• United States: Inflation remains elevated, hovering above 3%, with consumption bifurcated. High-income households remain resilient, while lower-income consumers are experiencing strain. The Committee expects U.S. growth to moderate over the next two quarters, with margin pressure building across sectors.

• Europe: Early signs of expansion are evident, particularly in manufacturing. However, Germany is showing stagflationary signals, while the UK continues to struggle with low productivity—a challenge similar to Australia.

• China: Stimulus measures and infrastructure spending are providing a floor under growth. Though industrial overcapacity remains a drag on efficiency, momentum is building in domestic equities, and valuations remain attractive relative to peers.

• India and Emerging Markets: While India has benefitted from strong capital flows, the market is now trading at a premium (~3.5x price-to-book). As a result, we have trimmed exposure to India and are reallocating toward better-valued opportunities in China, South Korea, and Brazil via managers like the Pzena Emerging Markets Value Fund.

Australian Economic Conditions: Slowing, Not Stalling

Domestically, the economy is being held aloft by government spending and infrastructure investment, though productivity remains weak and energy costs are contributing to margin pressure across sectors. Inflation is currently tracking at 2.8%, with housing and services the main contributors.

The housing market continues to show resilience due to a structural shortage of ~240,000 homes, although affordability remains stretched. The shortage in skilled trades and construction labour is pushing up costs, particularly in infrastructure projects.

Portfolio Positioning and Strategic Adjustments

Given the current environment, the Committee is maintaining a balanced and cautiously constructive approach. Our base case sees markets finishing the year higher, supported by liquidity, earnings stabilisation, and government policy. However, we remain alert to volatility—particularly around U.S. politics, inflation data, and China-U.S. tensions.

Overall Allocation

• Current client portfolios remain close to a 63% growth / 37% defensive mix

• New capital is being deployed at a 50/50 neutral weighting, with cash reserves held back to take advantage of any market corrections

Equities

• Materials remain a core holding. We maintain direct exposure to BHP, Rio Tinto, Fortescue, and global copper plays. We continue to favour commodity ETFs as a thematic overlay and remain constructive on uranium and gold allocations.

• Financials are underweight. While banks provide income, CBA and peers are showing signs of topping out, and loan growth is slowing. We expect subdued earnings in this space heading into FY26.

• Technology exposure is being selectively increased. WiseTech is seen as an opportunity, with a revised 12-month target of $125–135. The Committee is also reviewing cloud and data-centre infrastructure investments as a leveraged play on AI adoption.

• Healthcare remains mixed. The global sector is under pressure from rising costs, pricing scrutiny, and political attention. For now, we are choosing to wait before increasing exposure in this area.

• Consumer stocks such as Super Retail Group and Harvey Norman are under review. These names have contributed strongly since being added, and while fundamentals remain supportive, we are watching for signs of weakening momentum before rebalancing.

Property and Infrastructure

Our portfolios maintain a 12% allocation to real assets, including listed infrastructure and REITs. We continue to see value in office REITs, particularly as new supply remains limited and existing occupancy rates improve. Property assets offer inflation protection and steady income streams, which we view as valuable in this stage of the cycle.

Key Portfolio Adjustments

• India exposure reduced due to stretched valuations; reallocated to broader Asia via value-style emerging market managers

• Real assets remain a priority, but we are holding higher-than-normal cash to preserve flexibility

• Select stock actions:

  • Add to WiseTech on weakness

  • Monitor Super Retail and Harvey Norman for potential trimming

  • Remain overweight in copper, gold, uranium, and diversified commodity baskets

Client Takeaway

We believe that the path of least resistance for markets remains upward into year-end, though not without bumps. Inflation remains the primary risk, and we expect October to present volatility, particularly as global central banks recalibrate. That said, liquidity is supportive, and investor positioning is not excessively bullish, leaving room for upside.

Portfolios remain defensively tilted but are positioned to benefit from select growth themes such as AI infrastructure, real assets, and commodities. New money is being invested gradually, with a focus on valuation discipline and downside protection.

If you have any questions or would like to learn more, please do not hesitate to reach out to Cadre Capital Partners.