What drove the value comeback, and will it last?

In our latest video, I sit down with Dean McLelland, CFA, to explore why stretched valuations snapped back, how market favourites like CBA (ASX: CBA), Wesfarmers (ASX: WES) and CSL (ASX: CSL) have repriced, and the influence interest rates may have on returns in the year ahead.

My outlook for FY2026? It won’t be all smooth sailing—but there are opportunities for those ready to position strategically.

Edited transcript

Dean McLelland - Value enjoyed somewhat of a comeback in the back half of 2025 – what do you think drove this & do you think it will continue into 2026?

Even with hindsight its not easy to say why things changed & quite violently in some cases. I have said many times that valuation is like a rubber band: it can stretch & stretch, often much further than you think is possible, and then just snap.

And some of the valuations were crazy: CBA the biggest stock in our market was trading on 30x earnings, over four time book value in the middle of the year. This is for a stock, a bank, which consensus had minimal earnings growth for the next few years!

Now CBA, along with many of the growth / tech names, have come back materially. Relative to the market, CBA is down about 20% over the last few months. But my forward looking point, using CBA as an example, is that the stock still looks expensive at ~ 25x forward earnings.

And its not just CBA. Another top 10 stock, Wesfarmers, owners of the Bunning Hardware chain, peaked on almost 38x forward earnings. Now today WES is probably on low 30x but again for a stock which the market is forecasting low single digit earnings growth, that still looks pretty expensive to us!

Finally, just to give a flavour of how far market darlings can derate, I will use the example of CSL – a stock we now own by the way. In COVID, so roughly 5 years ago, CSL was the biggest stock in the market and traded at almost 50x forward earnings. Absolutely mad. Now today, after halving, the stock trades on high teens (17-18x). And that stock is forecast to grow earnings at high single digits!

Dean McLelland - Apart from valuations, what else do you see as impacting 2026?

I think the other key consideration is interest rates. Following some fairly hot inflation prints, the Aussie curve is no longer factoring any further cuts and indeed some economists are now forecasting rate rises next year.

So the people who were relying on rate cuts to drive the Aussie equity market are going to be disappointed. People who were relying on a further P/E rerating driven by rate cuts will definitely be disappointed.

This is in stark contrast to the US, for example, where the Fed are cutting (maybe not quite as fast as the President wants!).

Dean McLelland - How would you summarise your outlook for FY2026?

Given the starting point of high valuations for many parts of the market and the lack of rate cuts, our view is that returns will be pretty modest.

Overlay that with the fact that earnings for the Aussie market as a whole have gone backwards for three years now, but the market has risen, leaves us a little nervous.

The upside is that our portfolios contain none of the expensive growth & tech names, so we should be well positioned as valuations continue to normalise.

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Maple-Brown Abbott Australian Share Fund – Wholesale

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Managed Fund

Maple-Brown Abbott Australian Value Opportunities Fund

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