MARKET COMMENTARY
Equity Markets Hold Firm as Rate Expectations Reset
Global equities absorbed a shift in rate expectations this quarter. We break down what the repricing means for balanced portfolios and where our desk sees selective value in large cap shares.
KEY TAKEAWAYS
- Rate repricing hits long duration assets first, equities second.
- Earnings quality matters more than index level in a reset.
- Balanced books should rebalance on drift, not on headlines.
What actually changed
Markets spent the quarter revising how long policy rates are likely to stay elevated. The revision was not about a single decision, it was about the path. When the expected path shifts, the discount rate applied to every future cash flow shifts with it, and that reprices assets before any company reports a different number.
Equity indices held their level while the composition underneath changed materially. Cash generative large cap shares absorbed the move. Longer duration growth names, whose value sits mostly in distant earnings, carried the adjustment.
Where the desk sees value
Our screens favour businesses that fund their own growth. A company that does not need to refinance at the new rate has a structurally easier next two years than one that does.
- Free cash flow yield above the local bond yield
- Net debt to earnings below two times
- Pricing power demonstrated across at least two reporting cycles
What it means for a balanced portfolio
A reset is not a reason to leave the market. It is a reason to check that your weights still match your intent. If equities have drifted above target because of a strong run, trim back to target. If fixed income has drifted below, top it up. Rebalancing on drift removes the need to forecast.
This note is published for information only. It is not personal investment advice, and the value of investments can fall as well as rise.