Chart of the Week: Where we see opportunities after year end market sell-off
The latest insights from our equity research team.
This week’s chart comes from our equity research team’s latest Australian Equity Market Outlook for Q1 2026.
Australian equities have given back a lot of ground. From the record high in late October, the ASX 200 has fallen 5% by the end of November 2025, nearing a six-month low. Year-to-date returns have halved to 5% from 10%, and what was a strong year now looks average.
What triggered the selloff?
Cracks first appeared in the banks’ reporting season. Commonwealth Bank fell nearly 10% in the two sessions following its first-quarter update, the stock’s worst two-day stretch in four years, despite what looked like a reasonable result. Profit growth of only 2% year on year doesn’t justify the premium multiples CBA commands, and the market appears to be losing patience with richly priced, slow-growing stocks.
Then came the technology-led selloff in the US, which bled into local tech stocks despite our market’s tangential links to artificial intelligence. Australian equities rode the coattails of US tech enthusiasm on the way up, so perhaps it’s fair to give some of this back.
Australian stocks are fairly valued again
For most of 2025, Australian and New Zealand stocks traded firmly above our estimate of fair value. This is no longer the case. Our Australian and New Zealand coverage was at a slim 2% premium to fair value on an equal-weighted average as of Nov. 30, 2025. We consider this fairly valued territory.
Selloff uncovers more opportunities
More opportunities have emerged across our Australian and New Zealand coverage. As of Nov. 30, 36% of stocks are 4- or 5-star-rated, which is comfortably above the trailing 10-year average of about 25%. Pleasingly, about one-third of undervalued stocks also have a moat.
Energy, healthcare, and consumer defensive sectors are the most attractively priced. We are starting to see more opportunities in technology, too, which was hit particularly hard by the US artificial intelligence selloff. WiseTech, the largest stock in the technology sector, is now 5-star-rated and was recently added to our Best Ideas list.
The full report is available to Morningstar Investor subscribers and trialists.
You can find previous editions of Chart of the Week here.
