Australian equity market attractive in sea of volatility

The Australian equity market may actually represent a relatively safe haven in sea of volatility, according to Datt Capital chief investment officer, Emanuel Datt.

He says that as global markets remain gripped by volatility, the Australian equity market is proving to be relatively resilient as the result of a combination of currency dynamics, attractive US dollar-based valuations and the inherent nature of the Australian economy.

He said these are combining to drive relative outperformance and providing a compelling case for investors seeking defence and growth.

“Despite the ongoing volatility in global markets, the Australian share market continues to show pockets of strength,” Datt says. “This is being driven by a combination of factors that are often under-appreciated by global investors.”

He says a significant part of this resilience stems from the Australian dollar itself. As a free-floating currency, the Australian dollar naturally adjusts to global shocks, which helps cushion the impact on local businesses and exporters. The currency’s link to global commodity demand further reinforces this effect.

“When prices for key exports like iron ore, LNG and lithium are strong as they are today, the currency tends to remain firm, supporting both corporate earnings and investor confidence.”

Datt also highlights the role of monetary stability in making the AUD attractive for carry trades.

“Compared to many Western countries, Australia enjoys relatively stable interest rate settings and lower inflation volatility, which enhances the appeal of its financial markets for international capital.

“In valuation terms, Australian equities continue to trade at a discount relative to their U.S. and European counterparts, particularly when measured in U.S. dollar terms. In USD terms, Australia offers significant value,” Datt said. “Relative to the U.S. and Europe, our market remains undervalued, which is increasingly catching the eye of global value investors.”

The appeal is further enhanced by Australia’s consistently high dividend yields across many key sectors, which are particularly attractive to investors seeking income in uncertain markets. This stands in contrast to tech-heavy indexes where dividends are often negligible or non-existent.

Datt argues that geopolitically and economically, Australia remains a beacon of stability.

“With deep trade ties to Asia, especially China and India, Australia is well-positioned to benefit from demand in the region, even as Western economies face slowing growth. “Our proximity and deep trade relationships with Asia offer structural tailwinds that are difficult to replicate,” Datt noted. “Add to that a stable political backdrop, and you have a very compelling case for Australia as a low-risk, developed-market destination.”