2025 was a year of volatility, but also resilience for Australian equities. The S&P/ASX 200 Price Index rose 8.85% year-to-date by late October1, with dividends helping push total returns around 3% higher. That’s a strong result given the macro backdrop: tariffs, fragmentation, and slower-than-expected rate cuts globally.
Looking ahead to 2026, I expect more of the same: volatility, but with opportunity. Central banks are still cautious, and macro noise hasn’t disappeared. Yet Australia continues to hold up well. It’s not immune to global shocks, but it’s less exposed than many markets. That makes it a stable platform for active investing.
Importantly, I think we’re seeing a shift in market leadership. Banks have dominated for years, but resources are now better positioned, both cyclically and structurally. That’s supported by tighter supply, disciplined capital allocation, and renewed global demand.
Volatility is where alpha lives. You just have to do your homework and be ready to act when the market gives you a chance.
At the same time, macro is starting to fade as the dominant driver. I believe we’re returning to a market where stock-specific fundamentals matter more, with earnings growth, execution, and quality driving performance.
We continue to position the Fidelity Australian Equities Fund to capture value through bottom-up stock selection. The portfolio remains a concentrated, diversified core of 30 to 50 holdings across financials, resources, healthcare, consumer staples, and select growth names.
Financials remain an important position in the portfolio, with insurance and financial services offering compelling value. We hold high-quality franchises such as Commonwealth Bank and Suncorp, which offer strong capital positions and reliable dividends. These businesses are well placed in a stabilising rate environment. We are selective and focus on those with cost discipline and deposit strength, while still seeing value in the sector.
Resources is an area where we’re currently finding opportunities. The sector is benefiting from tighter supply chains, strategic relevance, and capital discipline. Gold has acted as a safe haven during periods of volatility, while copper remains central to electrification and infrastructure investment. These are not short-term trades. They are structural opportunities supported by global underinvestment and long-term demand. We believe the market is beginning to reprice the sector, and that process has further to go.
We also maintain exposure to defensive compounders in healthcare and consumer staples. Coles and Resmed are examples of companies offering pricing power and operational resilience. These businesses have demonstrated the ability to grow earnings consistently through different market conditions.
Emerging themes in Australian equities
One of the most significant shifts underway in the Australian market is the rotation in market leadership from financials to resources. For several years, banks have delivered strong returns, supported by stable dividends and resilient earnings. But the resources sector is now gaining momentum. Copper and rare earths are increasingly recognised for their strategic value amid US onshoring initiatives while Gold has benefitted from global central bank reserve diversification. This is not a typical, cyclical, short-term rebound. It reflects a broader structural change in how investors are valuing hard assets to the benefit of companies such as Lynas, Evolution and BHP. We therefore believe this re-rating has further to run.
Artificial intelligence is another theme reshaping the market. In recent years, the market rewarded companies selling AI infrastructure, such as chipmakers and software platforms. But in 2026, the emphasis is shifting toward businesses that are integrating AI into their operations. Banks are using AI for credit risk and fraud detection, insurers are automating claims, and retailers are optimising inventory and pricing. These are not speculative technology plays; they are practical applications that enhance margins and improve productivity. We are already seeing this reflected in companies within our portfolio that are quietly embedding AI into their core processes to improve productivity.
We also see a clear shift back toward fundamentals. Macro factors such as interest rates and inflation have dominated market movements in recent years, but that influence is beginning to fade. Investors are once again focusing on company-specific drivers like earnings growth, strategic execution, and financial strength. This environment favours active management and disciplined stock selection. In our portfolio, we are backing businesses with strong balance sheets and clear strategic direction i.e., companies that can grow through cycles and deliver differentiated returns.
Australia’s market structure continues to offer resilience in a more fragmented global environment. As trade becomes more regionalised and currency dynamics evolve, the mix of domestic financials, high quality resources, and defensives provides a natural buffer. While Australia is not immune to global shocks, it is less exposed to the downside risks that come with geopolitical and economic fragmentation.
These themes are not about chasing momentum. They are about identifying enduring shifts and backing companies that are positioned to benefit from them. That is where we believe the most compelling opportunities lie.
Navigating ongoing volatility
I've been investing in markets for more than 25 years and have seen my fair share of crises. The key approach I take when navigating volatility is to stay cool, stay invested, and seek opportunity.
If we have strong conviction in a company that experiences a minor set-back like short term dislocations or earnings misses, a volatile market can provide the opportunity to create attractive entry points into high-quality, long-term growth stories. That is how we generate value.
We also maintain a disciplined approach to valuation and financial strength. If a business is trading at depressed levels but has a solid balance sheet and durable earnings, it becomes a candidate for investment. This discipline has helped us navigate multiple market cycles.
Within the portfolio, we manage volatility through intentional diversification. We invest in sectors across financials, resources, defensives, and growth, each with distinct earnings drivers. This balance provides resilience across different macro environments.
And finally, we believe in process consistency. Our concentrated, bottom-up approach, is built to absorb shocks and capture dispersion. We are not trying to predict every macro event. We are focused on owning high-quality businesses that can compound value over time.
Volatility is where alpha lives. You just have to do your homework and be ready to act when the market gives you a chance.
Source: 1: Morningstar, November 2025: S&P/ASX 200, ASX All Ords Share Prices & Charts (LIVE DATA)
