Investors flock back to local equities amid attractive conditions

The private credit thrill is slowly fading as concerns over transparency and lacking regulation grow at the same time as favourable conditions driving the strong performance of Australian equities propel investors to return to “safety”.

According to boutique Australian equities manager, Datt Capital, investors grappling with a perfect storm of private credit “instability” fuelled by “opaque structures, uneven underwriting and constrained exits” have made the move back to stable, daily liquidity of Australian Securities Exchange (ASX)-listed stocks.

Chief Investment Officer, Emanuel Datt, said outperformance will be reserved for companies with strong balance sheets, robust earnings and teams with a track record of successful capital allocation.

“This is a durable tailwind for quality Australian equities and one we expect will persist into 2026,” he said.

“There are also several other factors which we believe will support local equities over the next few months.

“We are also attentive to M&A-ready situations where governance improvements, portfolio simplification or credible cost programmes can compress the gap between intrinsic value and market price.”

Datt said investors have noticed the “value differential” between Australian and US equities that presents more attractive local opportunities, including “lower entry points, credible governance, and clear takeover rules”.

Against the backdrop of the recent gold rally, the new critical minerals and rare earths framework introduced between Australia and the US will also contribute to reducing the cost of capital for Australian minerals producers and help increase the value of local opportunities. Similarly, the “current level of real interest rates, which remain near zero”, will drive performance for companies with “pricing power, predictable revenue streams and conservative leverage”.

“The framework commits both countries to mobilise financing, accelerate permitting, and develop pricing mechanisms to secure supply chains from mine to processing. In our view, that policy scaffolding could have wide-ranging benefits not just for minerals products but also services, logistics, and advanced manufacturing adjacent to the sector,” Datt said.

“We have seen the strength of selective quality companies across our portfolios.”