This article was originally published on LivewireMarkets.com on April 17th, 2025

here are plenty of reasons to stay positive about Australia and the ASX – even with all the uncertainty. That’s according to Elston’s ever-optimistic large-cap specialist, Andrew McKie. He believes Australia’s unique position and market structure provide the kind of foundation needed to weather turbulent markets.

McKie’s confidence is grounded in several tailwinds: massive pools of superannuation, rising household wealth, a prime spot in a high-growth region, and consistent GDP growth (our last recession was in the early 1990s). At a market level, he points to a feature he calls the “Oligopoly Effect.”

“In Australia, we end up with these really concentrated market positions in the big end of town. Name an industry, you’re probably going to find someone in a duopoly, oligopoly or even a monopoly position,” McKie noted.

That’s great news for investors – provided these businesses aren’t abusing their market power. “It drives higher returns on capital, stronger businesses, cash flows, and so on,” he adds.

Many of these businesses might look steady, stable, and maybe even a bit boring. But McKie argues they’re actually in pole position to benefit from the next wave of digitisation and artificial intelligence – tech that will further entrench their dominance.

“We’d call this the second derivative of the AI boom. It’s about applying technology to core operations. A large-cap business in a dominant market can afford to invest in these applications. And with a big workforce – often white collar – doing lots of low-value tasks, there’s real potential to automate,” McKie argued.

These businesses also tend to have big customer bases. That gives them the chance to improve the customer experience, increase retention, control costs – and boost margins.

Brambles (ASX: BXB) is a good example. McKie says tech investment helped them track down 12 million missing pallets.

“It makes the business more efficient from a CapEx point of view, with better margins. We think that’s the trend we’ll see across a lot of large caps.”

Andrew McKie, Managing Director and Portfolio Manager, Elston

A big position in healthcare

Elston focuses on the top 100 companies on the ASX, using a ‘relative value’ approach. In simple terms, they’re after growth – but not at any price.

McKie’s also quick to acknowledge what’s driven recent market performance – and why it probably won’t happen again.

“Of the return for the last year in the ASX100, 92% of the positive contribution came from six names,” McKie explained.
He points to CSL, which has traded sideways for five years after a strong run. In his view, it’s been “growing into its valuation.” It’s a scenario he sees possibly playing out with the big banks too – which is why Elston only owns one of the big four.

So, where is he seeing value now? Healthcare. The fund holds major names like Cochlear (ASX:COH), Sonic Health Care (ASX:SHL), Ramsay (ASX:RHC) and ResMed (ASX:RMD).

“It’s the first time in 13 years we’re overweight healthcare – and we own most of the major names in the ASX100,” McKie noted.
He believes the sector is in a good spot. The COVID overhang is fading, and stock-specific catalysts are setting the stage for better earnings.

One standout is Sonic Healthcare, thanks to its 49% stake in Franklin AI.

“It’s essentially a second pair of eyes for a pathologist. It makes them more efficient and accurate in diagnosis,” McKie explained.

“It’s a great example of this Meditech theme that will flow through to healthcare names.”

Taking the long view

One of the biggest challenges (and opportunities) in large caps is the sheer volume of broker and analyst coverage. McKie says it creates a short-term mindset – and that can push share prices out of step with the fundamentals.

Take Seek (ASX:SEK). It’s a recent addition to the portfolio. Job ad volumes have been falling, which has weighed on the share price. But McKie says there’s more going on behind the scenes.

“They’ve been working on a unified tech base that will improve efficiency and cut costs.”

At the same time, Seek has been increasing market share and pushing through price rises. A clear sign of a business with pricing power.

“Once volumes recover, particularly if interest rates are cut and we see a recovery in private sector employment, that business is well-positioned for earnings growth over the next three to four years,” McKie said.

A silver lining from the tariff wars

Trade disputes and tariffs are disruptive. They create uncertainty and will likely dampen growth in the short term. But McKie can still see silver linings in those storm clouds.

“You’ve got the two biggest economies at each other’s throats, and it’s not going to end easily. There’s going to be disruption, and we think GDP in China will take a hit,” McKie explained.

That’s not great news for Australia’s major miners, who rely heavily on China. But McKie says the potential for Chinese stimulus could help reignite the lagging share prices of BHP and Rio.

He also sees a possible secondary effect – Chinese goods being redirected away from the US.

“That could ease cost-of-living pressures here by lowering input prices and goods costs. And that could eventually lead to lower inflation and interest rates,” he added.

So while the headlines may be noisy and the outlook uncertain, McKie sees plenty of reasons to believe Australia’s remains the Lucky country.

Australia’s unique market structure and long-term themes like technology driven efficiency are reasons to remain optimistic on our largest stocks. For investors willing to look through the short-term noise, there are still quality opportunities hiding in plain sight.

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