2024 has been a solid year for Australian equities, with the ASX 200 returning +13% this year-to-date as local shares have followed offshore markets higher.
The domestic market’s gains have been impressive in the context of a weak earnings backdrop, with the ASX 200 delivering negative ~3% EPS growth in the 2024 calendar year. Given the subdued earnings environment, the market’s return this year has been driven predominately by valuation multiple expansion.
The most influential theme of 2024 has been the bifurcation between the resources and industrials (i.e. non-resources) sectors, as the former has struggled amidst China’s lacklustre economy and property market, which has weighed on the performance of major commodities like iron ore (albeit with notable exceptions like gold, aluminium and copper).
With resources out-of-favour, investors have seemingly crowded into industrials sectors that offer a degree of earnings certainty, most notably the banks, where valuations have pushed to extreme heights.
Key Views for 2025
After significant multiple expansion this year-to-date, the ASX 200 trades on a forward PE multiple of ~18.5x (+1 standard deviation above its five-year average), which we view as a demanding valuation considering the market is expected to deliver relatively modest EPS growth of ~5% in calendar 2025.
In this environment, the Focus Portfolio is concentrated in sectors and companies that have attractive earnings prospects supported by bottom-up structural growth drivers. Key overweight exposures are towards the higher-growth IT, Healthcare, and Consumer Discretionary sectors, while the portfolio’s largest underweight continues to be towards Financials (driven by our banks underweight).
Some of the key sector views that underpin the portfolio’s positioning heading into 2025 include:
- Resources - Overweight industrial metals, underweight iron ore.
- Banks - Remaining underweight the banks.
- Technology - Staying positive on high growth tech despite 2024 rally.
Resources – Selectively Bullish
Focus Portfolio Positioning: Overweight
After a disappointing year for resources, parts of the sector are offering attractive value in what is an otherwise expensive market. Over the course of 2025, the direction of key commodity prices will be driven by a confluence of headwinds and tailwinds, including:
1. Tariffs
US President-elect Trump has threatened tariffs of 10% on China and 25% on Canada and Mexico in 2025. While the magnitude and timing of proposed tariffs is uncertain, the potential for a prolonged trade war is negative for industrial metals demand. A trade war involving the US and China would threaten to dampen global growth and hence commodity demand, while potentially driving US dollar strength (and thus lower commodity prices in USD terms).
2. China stimulus
China’s commitment to adopting ‘appropriately loose’ monetary policy (representing the first easing of monetary policy in 14 years) and ‘more proactive’ fiscal policy suggests that additional stimulus is on the way in 2025. This should provide a much-needed boost to commodity demand, albeit specific detail has been limited at this stage. We expect stimulus to be focused on restoring consumer confidence/spending, energy transition related investments, as well as measures to stabilise the property market.
3. Geopolitical risks
With ongoing conflicts in the Middle East and Europe, the potential for supply shocks in the energy market will remain a tail risk that could support oil and LNG prices in 2025. Precious metals also continue to provide a geopolitical hedge against numerous tail risks (war intensification, tariff escalation, debt fears) given their 'safe haven' status, while gold should also continue to benefit from structural demand tailwinds (i.e. central bank buying).
Remaining selective towards commodities
Everything considered, we remain cautious towards resources overall as the outlook for commodity demand in 2025 is clouded by Trump’s trade threats and the lack of detail around China’s stimulus plans, which have underwhelmed the market so far. This environment prevents us from adopting a more bullish stance towards industrial commodities ‘across the board’.
While it is possible that China unveils a large stimulus package over the coming months (which could prompt a broad-based rally in the short-term), our preference is towards commodities that have tight supply backdrops which should drive deficits over the medium-term, irrespective of China’s ultimate stimulus response.
Our key commodity views for 2025 are:
Cautious iron ore
Iron ore fundamentals remain weak. Steel demand is set to remain under pressure in 2025 due to China’s property market challenges, with housing starts anchored at multi-year lows and the market remaining significantly oversupplied.
Stimulus should provide some downside protection to iron ore prices, which has stabilised the risk/reward for 2025, although measures are unlikely to address the structural issues in Chinese real estate or result in significant growth in new property/infrastructure investment.
Soft demand, combined with solid additions to supply over the next few years, is likely to result in a growing oversupply and lower iron ore prices over the medium-term, albeit with the cost curve likely providing support around US$80-90/t.
Overall, our base case is for moderately lower iron ore prices in 2025. While the portfolio remains underweight iron ore, BHP is our preferred exposure, given it is the lowest cost iron ore producer with the greatest copper exposure out of the majors (see our view on copper below).
Positive industrial metals (copper, aluminium)
Unlike iron ore, both copper and aluminium are benefitting from tight supply environments. Furthermore, on the demand side of the equation, both commodities are less exposed to China’s property market than iron ore. They are also benefiting from secular decarbonisation related tailwinds, and are likely to be beneficiaries of Chinese stimulus focused on both energy transition investments as well as broader economic stimulus.
The copper market should see limited new supply in 2025/2026 (ageing mines, limited investment), while demand is expected to hold up. With respect to the aluminium market, China’s smelter output is nearing its production cap (45 mtpa) and the ex-China supply growth remains muted, which will likely mean that new supply fails to keep pace with demand in 2025.
Overall, both copper and aluminium are likely to enter supply deficits in 2025 (that should widen over the medium-term), which is supportive of higher prices for these commodities. Our preferred pureplay copper producers are Sandfifire Resources and MAC Copper, while our preferred aluminium exposure is South 32. The portfolio also has diversified exposure to copper through its positions in Evolution Mining (gold/copper) and BHP (iron ore/copper).
Positive industrial metals (copper, aluminium)
Unlike iron ore, both copper and aluminium are benefitting from tight supply environments. Furthermore, on the demand side of the equation, both commodities are less exposed to China’s property market than iron ore. They are also benefiting from secular decarbonisation related tailwinds, and are likely to be beneficiaries of Chinese stimulus focused on both energy transition investments as well as broader economic stimulus.
The copper market should see limited new supply in 2025/2026 (ageing mines, limited investment), while demand is expected to hold up. With respect to the aluminium market, China’s smelter output is nearing its production cap (45 mtpa) and the ex-China supply growth remains muted, which will likely mean that new supply fails to keep pace with demand in 2025.
Overall, both copper and aluminium are likely to enter supply deficits in 2025 (that should widen over the medium-term), which is supportive of higher prices for these commodities. Our preferred pureplay copper producers are Sandfifire Resources and MAC Copper, while our preferred aluminium exposure is South 32. The portfolio also has diversified exposure to copper through its positions in Evolution Mining (gold/copper) and BHP (iron ore/copper).
Big 4 Banks - Due for a Pause
Focus Portfolio Positioning: Underweight
Following the outperformance of the big 4 banks in 2024, risks are skewed to the downside for 2025.
After significant multiple expansion this year, the ASX 200 banks index trades on a forward PE multiple of ~18x, which is >2 standard deviations above its historical average.
At current levels, valuations are detached from the sector’s (uncompelling) underlying profitability trends. The major banks are offering average cash EPS growth of just ~2% in 2025 and ~1% in 2026, while their aggregate ROE contracted in FY24.
While the sector is benefitting from flow-driven momentum and its reputation as a relatively stable sector (particularly compared to under pressure resources), with its valuation at post-GFC highs, we cannot envisage further meaningful multiple expansion in 2025.
With asset quality metrics still deteriorating, implying bad debts will rise over the medium-term, we don’t see scope for meaningful upgrades to consensus earnings in 2025 sufficient to justify the bank sector's current valuation.
ANZ and Westpac are our preferred bank exposures given their attractive relative valuations and superior capital return profiles.
Tech Can Outperform Despite High Multiples
Focus Portfolio Positioning: Overweight
While valuations have re-rated strongly across the wider technology sector, which has contributed to the sector’s index-leading performance this year (along with strong EPS growth), we remain positive towards our key technology exposures which includes Xero, HUB24, WiseTech, and TechnologyOne.
The market environment is broadly supportive of structural growth companies heading into 2025.
Unlike much of the market, each of these companies are delivering significant earnings growth, as they grow their respective subscriber/customer bases, expand their product offerings, and drive operating leverage.
The scarcity of growth elsewhere in the ASX 200 continues to justify a premium for high-quality technology businesses that are generating attractive, above-market EPS growth. This stands in stark contrast to the banks sector, where valuations are stretched despite the sector’s tepid, below-market EPS growth outlook.
The key for our tech exposures to continue to trade at high multiples and outperform the market in 2025 will be them maintaining positive consensus earnings momentum (i.e. earnings upgrade cycles) like they have throughout 2024, which we are confident they can do.
| 12 mth fwd P/E multiple | EPS growth | 12 mth fwd EPS - revisions to consensus estimates % |
||||||
Current |
+/- % vs start of 2024 | +/- % vs 5 yr avg | CY2025 | 3yr CAGR (2025-27) | 1 month | 3 months | ||
| Xero | XRO | 84.3 | 0% | -61% | 50% | 35% | 2% | 9% |
| Hub24 | HUB | 56.4 | 50% | 28% | 29% | 22% | 1% | 6% |
| TechnologyOne | TNE | 67.3 | 63% | 59% | 18% | 19% | 3% | 6% |
| WiseTech | WTC | 87.5 | 11% | 11% | 41% | 34% | -3% | 5% |
Source: Refinitiv, Wilsons Advisory.
| Company | Ticker | Key earnings drivers |
| Xero | XRO | Significant earnings growth will be underpinned by solid subscriber growth, continued ARPU (average revenue per user) growth driven by price rises and upselling, alongside significant operating leverage / margin expansion as the business scales (while exercising cost control). After Xero's sizeable 1H25 EBITDA beat, there is still meaningful scope for the business to lift its ARPU higher over the medium-term, which alongside sustained double-digit subscriber growth presents upside risks to consensus estimates in CY2025. |
| Hub24 | HUB | HUB24 is in the midst of significant industry tailwinds that are benefiting specialist platform providers. The business should see a continuation of strong inflows over the next 12-24 months as incumbent platforms embark on forced consolidation/migration programs, with ~$100bn of FUA (funds under administration) expected to be in-flight. Strong FUA growth, combined with operating leverage/margin expansion (as HUB24 rationalises its level of reinvestment), will drive significant earnings growth over the medium-term. At its strategy day, HUB24 confirmed it is tracking ahead of its FY26 FUA target of $115-123bn (vs $84bn in FY24). |
| TechnologyOne | TNE | TechnologyOne is a perennial earnings upgrader. We expect sustained mid to high-teens EPS growth to be underpinned by new customer wins (with its penetration still <15% in every core market), new product launches (e.g. Digital Customer Experience), increasing customer penetration (upselling to existing customers), and operating leverage/margin expansion as the top-line scales. After beating its guidance in FY24 with ARR growth of +18% (vs guidance of 12-16%), we expect the business to achieve its ARR target of $1bn+ by FY30 ahead of schedule. |
| WiseTech | WTC | Notwithstanding WiseTech’s recent FY25 guidance downgrade, which was driven by a delayed product launch due to one-off disruptions associated with Richard White stepping down from the role of CEO, the company’s earnings growth outlook remains very strong. Over the medium-term, WiseTech’s earnings growth will be underpinned by large freight forwarder rollouts, the monetisation of new product launches (with Container Transport Optimisation now scheduled for 2H25), and operating leverage/margin expansion. Given WiseTech still only has mid-single-digit share of its addressable market, there is still a long runway for further share gains as freight forwarders modernise their IT systems, which the business is well placed to capitalise on as the market-leading logistics software provider. |
Source: Wilsons Advisory.
Portfolio Positioning – Retaining a ‘Growth at a Reasonable Price’ Bias into 2025
After a strong year of market outperformance, we are confident that the Focus Portfolio is well positioned as we approach 2025. The portfolio is principally invested in high quality businesses with durable competitive advantages and long runways for growth. With market valuations looking increasingly demanding and index-level EPS growth still subdued, our overarching focus is on investing in ‘growth at a reasonable price’.
| Portfolio characteristics | Focus Portfolio | ASX 200 | + / - |
| Forward P/E multiple | 18.4 | 18.5 | -0.1 |
| EPS growth (FY25) | 10.0% | 1.3% | 8.7% |
| EPS CAGR (FY26-FY27) | 16.0% | 6.1% | 9.9% |
| Return on Equity (ROE) |
18.0% | 12.5% | 5.5% |
Source: Refinitiv, Wilsons Advisory.
Wilsons Investment Strategy Group wishes all our clients and their families a happy holiday season. We will be offering our insights into investment themes, trends, and opportunities again from late January 2025. Have a wonderful break!
Written by
Greg Burke, Equity Strategist
Greg is an Equity Strategist in the Investment Strategy team at Wilsons Advisory. He is the lead portfolio manager of the Wilsons Advisory Australian Equity Focus Portfolio and is responsible for the ongoing management of the Global Equity Opportunities List.
About Wilsons Advisory: Wilsons Advisory is a financial advisory firm focused on delivering strategic and investment advice for people with ambition – whether they be a private investor, corporate, fund manager or global institution. Its client-first, whole of firm approach allows Wilsons Advisory to partner with clients for the long-term and provide the wide range of financial and advisory services they may require throughout their financial future. Wilsons Advisory is staff-owned and has offices across Australia.
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