A broader, more diversified approach on the ASX could be more effective in a higher interest rate, higher inflation environment, as investors grapple with the likely impact on the consumer, according to ST Wong, Chief Investment Officer at boutique fund manager, Prime Value Asset Management.
The RBA’s move will introduce a degree of caution for investors, Wong said. “In its latest statement, the central bank cut its economic growth forecasts and is also anticipating a longer horizon to inflation returning towards the mid-point of the RBA’s target 2-3% band.
“Depending on the trajectory of future rate rises, which is now even more dependent on the pace of inflation, economic growth should slow, which will be on the mind of investors.”
The rate rise has come at an interesting time on the ASX where many quality stocks have underperformed. “We’re facing an interesting dynamic where the Australian dollar is climbing higher, and there are many quality companies which have underperformed magnificently.
“These could theoretically represent good buying opportunities, though it’s not a done deal – an attractive valuation will not guarantee future returns. Investors need to choose wisely.”
Wong said shifting from binary to broad thinking could be necessary in this market. “Instead of thinking in binary terms, such as value versus growth, or banks versus resources, consider broad thinking.
“Think broad-based exposure to a variety of opportunities. For example, instead of thinking about the Mag 7 companies the USA or CBA in Australia, both which worked well in 2025, look for opportunities across the market spectrum.
“This could mean some value and growth stocks – both banks and resources. A broad-based exposure to quality companies with good earnings.”
Mr Wong said he would be watching for any possible impact on the consumer. “Higher interest rates will exacerbate the two-speed economy, thereby influencing spending patterns.
“We will be watching for the trajectory of interest rates but also for relief on cost-of-living pressures for the middle to lower income cohort.”
He also said that companies exposed to higher gearing levels are suddenly less attractive. “Late last year the market was talking about potential interest rate cuts, but things can change quickly and it’s hard to justify exposure to leveraged stocks.”
ST Wong manages the Prime Value Opportunities Fund, which is Recommended by both Lonsec and Zenith, and has delivered 9.3% per annum net of fees since inception in 2012 to 31 December 2025.
Prime Value Asset Management was founded in 1998 and is part of an investment group including Shakespeare Property Group, managing around $3 billion in equities, income securities, direct property and alternative assets.
[Source: AdviserVoice]