The Australian sharemarket is poised for another year of solid, but unspectacular returns in 2026. After underperforming most major developed equity markets in 2025, the ASX is unlikely to play catch-up, according to market analysts. While the economic outlook remains constructive, investors should expect returns that are good enough to surprise the bears, but probably not good enough to appease the bulls. The Australian economy is expected to grow around trend, supported by a solid labour market, strong immigration, improving global economic conditions and positive credit growth.
Despite the Australian market appearing fully valued at 20-times earnings, profit growth broadening beyond resources into financials, industrials, and high-quality domestic companies should support further gains. The sharemarket could exceed trend expectation returns of 8 per cent to 10 per cent, underpinned by earnings and a further re-rating of price-earnings multiples. Sectors that can benefit from domestic demand, commodity tailwinds, and structural changes like AI are expected to perform well, while caution is advised for those most exposed to global volatility, higher interest rates, and valuation risk.
Stock picking will be essential, with a focus on companies with strong cash flow generation, pricing power, and the ability to execute on operational efficiency or restructuring. Sectors exposed to infrastructure, energy transition, and digital transformation also present thematic opportunities. While the key market drivers of 2025 still hold, outperformance will start to favour late cycle cyclicals like materials and miners and offshore cyclicals, particularly in the US, as rate hikes become more likely. Tightening liquidity is a headwind for richly valued growth stocks, although bubble risks or an impending sharemarket crash are not expected.
Jun Bei Liu is the lead portfolio manager at Ten Cap. While the information doesn’t specify what Ten Cap does, one can infer that they are an investment management company focused on portfolio management. In this environment, it is recommended that investors should remain agile and focused on company fundamentals, ensuring their portfolios can adapt to a range of economic scenarios amid geopolitical risks and economic uncertainty. The Australian sharemarket still offers opportunities for those willing to be selective and disciplined.
