Australia's comeback is coming: Jason Todd's bold 2027 call and 3 stocks Jun Bei Liu likes

Australians love a good sporting comeback. And there's arguably nothing sweeter than pulling off an upset against the Americans.

Just ask the Boomers, who stunned Team USA 98–94 in Melbourne in 2019, ending a 55-year drought against the basketball superpower.

Of course, occasions when Australia gets one over the Yanks are relatively few and far between. We might have them covered on beaches, healthcare and quality of life, but when it comes to the share market, Wall Street has been running rings around the ASX for years.

The S&P 500's technology heavyweights have delivered extraordinary returns, leaving Australian equities eating dust. The chart below illustrates just how wide the performance gap between the two markets.

So, could 2027 finally be the year the ASX gets its own Boomers moment? Not necessarily because Wall Street has a shocker, but because both markets put points on the board and Australia comes out on top.

Ten Cap CEO Jason Todd reckons there's a strong chance of just that, arguing that pessimism surrounding the domestic economy has become excessive and much of the bad news is already priced into shares.

Speaking alongside fellow co-founder and Lead Portfolio Manager Jun Bei Liu at a recent TenCap webinar, Todd outlined why Australia's prolonged underperformance, its relatively limited exposure to the AI trade and the prospect of peak interest rates could set the stage for an unlikely comeback.

And Liu believes the opportunity extends well beyond the broader market, with some of Australia's highest-quality companies now trading at valuations rarely seen in years.

The case for an Aussie upset

Having worked in financial markets since 1996, Todd believes investors today have become excessively focused on macroeconomics, with “too much emphasis on trying to call where the cycle is” rather than assessing company fundamentals and valuations.

Despite concerns about rising bond yields, conflict in the Middle East and elevated oil prices, he believes the global economic cycle remains intact, with forward-looking indicators such as purchasing managers' indices (PMIs) continuing to signal expansion.

“We feel comfortable that the growth backdrop is globally is going to be intact,” he says.

“Everyone seems to have a bee in their bonnet about where bond yields have gone to in the last 12-18 months; 80% of what we’ve seen is just a normalisation from very, very low levels that were there for structural reasons post the global financial crisis."

With the U.S. 10-year hovering at around 5%, broadly in line with pre-GFC levels, Todd doubts higher rates will necessarily derail equity markets, particularly when inflation partly reflects stronger economic growth.

For now, “markets and economies are absorbing risks, not ignoring risks.”

And it's when he turns his attention to Australia that Todd becomes particularly bullish.

“I’m going to go out on a limb here and I actually think Australia will defy expectations which seem to be very, very bearish at the moment because the RBA is out there talking very negatively, house prices are falling, people are concerned about consumptions… I think Australia will have a good year.”

“All the underperformance we’ve seen in 2023, 2024, 2025 we think will set the market up for reasonable performance,”

He expects interest-rate-sensitive and deeply cyclical consumer stocks could finish 2027 “at the top of the performance table”, while defensive sectors such as utilities and consumer staples could end up “at the bottom”. 

The charts below show that, encouragingly, early signs of an earnings recovery are already emerging in some of these battered sectors, and how sector leadership can change quickly from one quarter to the next.

The market has forgotten what makes a great business

Building on Todd's macro outlook, Liu believes the relentless volatility and noise of the past 12 months have distracted investors from what matters most.

"Many investors have forgotten how to invest in businesses," she observed, arguing that investors have become so easily swayed by external factors that their holding periods have shortened dramatically.

“You’ve got AI disrupting a lot of growth businesses, and investors' attitude is like, ‘Forget about it.’ Even though these are decades-long compounders, they’re saying, ‘We’re going to sell because we don’t know what it might look like.’”

“You’ve got the Iran war, oil prices going through the roof, and investors dumping industrial businesses or companies exposed to high oil prices.”

“Investors' attention spans have shortened to barely a headline, or really just a couple of weeks ahead.”

Drawing on nearly 30 years of investing experience, Liu argues that long-term returns come from buying quality businesses at attractive prices, backed by capable management teams.

Yet investors increasingly treat companies as prisoners of their external environment, overlooking their ability to adapt, innovate and capitalise on developments such as AI.

“These management teams will find ways around challenges and grow earnings. In today’s world, the market doesn’t give businesses the benefit of the doubt. Things go wrong, but good management teams will pull through.”

The result is an obscene valuation divide in the Australian market. Quality compounders are trading at steep discounts, while defensive names such as Woolworths have benefited from a flight to safety, and banks and miners continue to command lofty valuations.

Against this backdrop, Liu has identified three high-conviction quality compounders she believes are well-positioned heading into 2027.

1. The Lottery Corporation (ASX: TLC)

Liu sees an opportunity in The Lottery Corporation, which she likened to an infrastructure-style business that's the “cheapest it’s ever been”.

The company has endured a difficult period, partly due to an unfavourable run of jackpot outcomes. However, Liu believes its underlying business quality remains intact and its valuation has become particularly attractive.

“But we’ve seen it recently start to turn, and its share price has yet to reflect the true value of this business.”

She also believes consumer-linked businesses could benefit as the RBA's narrative shifts towards stabilising or falling interest rates.

The Lottery Corporation trades on a price-to-earnings (P/E) ratio of 42 times and offers a dividend yield of 3.1%, rising to 4.4% when grossed up for franking credits.

2. Codan (ASX: CDA)

Codan has emerged as a beneficiary of increased global defence spending, particularly through its specialised communications technology.

“It’s got this incredible tailwind from defence spending. It has the communications hardware that helps drones communicate with each other, which is quite unique.”

Liu pointed to a string of substantial earnings upgrades as evidence of strengthening demand.

Despite its strong share price performance, Codan remains one of TenCap's largest positions, with Liu continuing to back its growth prospects.

Codan trades on a forward price-to-earnings (P/E) ratio of 41 times and offers a fully franked dividend yield of 0.8%, rising to 1.2% when grossed up for franking credits.

3. Ansell (ASX: ANN)

Liu also likes Ansell, which she believes is an underappreciated picks-and-shovels beneficiary of the AI boom.

The protective equipment manufacturer is benefiting from US industrial onshoring, stronger pricing power and growing demand for cleanroom products, including gloves used in highly controlled environments.

“Demand has been very strong for industrial businesses because of onshoring. On top of that, they also have good exposure to growth in what they call ‘cleanrooms’, where gloves are needed.”

“Ansell is going through a new phase with a new CEO. They're experiencing pricing power and strong demand, while also looking at cost efficiencies.”

With several potential drivers of earnings growth, Ansell sits within the defensive allocation of TenCap's portfolio.

A final warning on NEXTDC

The webinar concluded with a discussion about NEXTDC (ASX: NXT), following its announcement that community opposition had disrupted works associated with its M3 data centre expansion.

Liu revealed that TenCap had avoided the stock, partly because of its substantial capital requirements and reliance on repeated equity raisings.

“We always felt it needed to come back to the market every 12 months or so to raise money.”

She also highlighted the risks embedded in data centre contracts, pointing to Microsoft's reported withdrawal from a UK AI data centre deal as an example of how even major technology companies can reconsider their commitments.

“Customers have a lot of rights in these contracts. Any delay could mean paying enormous fines, and you could potentially risk the customer walking away.”

While Liu believes NEXTDC's limited competition makes a major customer departure less likely, the M3 setback illustrates a growing risk for data centre investors: projects can be derailed by factors beyond an operator's control, including community opposition.

She expects investors to become increasingly discerning about which operators can deliver projects on time, particularly as NIMBYism creates further obstacles to development.

Nevertheless, Liu continues to regard NEXTDC as a quality operator and will be watching closely to see how it navigates the M3 expansion.