20th July, 2026

The Empty Side of the Field

Watching Messi score his first World Cup hat-trick recently, I found myself thinking back to weekends spent watching my kids play soccer.

At that age, the game is wonderfully simple. Wherever the ball goes, every kid follows. Half the field sits empty. Coaches shout, parents laugh.  Everyone’s watching the ball.  Nobody pays attention to the empty space.

Today’s stock market isn’t so different.  Attention is finite. Wherever it flows, something else gets left behind. Every crowded trade creates a neglected one — two sides of the same field.

Over the past year, investors have been captivated by artificial intelligence, and for good reason. We think AI is one of the most important technological developments of our lifetime, and the companies building the infrastructure behind it have created real value. In many cases, the attention is deserved.

 Earlier this year, when geopolitical tensions in the Middle East triggered a sharp correction in semiconductor stocks, we saw opportunity rather than risk. We expressed our view to investors at an event in Brisbane: the long-term demand drivers hadn’t changed just because markets had gotten nervous. So, we added to several positions, a decision that is so far looking positive. If anything, we could have leaned in harder.

Our conviction in AI hasn’t changed. Where we’re finding the next opportunity has.

Attention Has Become Exceptionally Concentrated

Investor Rob Arnott put it well: “When bubbles start in one place, there’s an anti-bubble somewhere else.”

Whether today’s AI trade becomes a bubble isn’t really the point. When everyone runs toward one opportunity, something else gets left behind — and that’s where we’re increasingly looking.

The numbers make the concentration hard to ignore. Semiconductors alone accounted for nearly 55% of global equity market returns this year. Add technology hardware and that climbs past 80%. Include industrial companies benefiting from AI infrastructure spend, and roughly 96% of total market gains came from just three industry groups¹.

Thousands of listed companies compete for capital every day. Almost all of the market’s gains came from a narrow slice of it.

What happened elsewhere is just as telling. Software, consumer discretionary and healthcare all detracted from market².

The market hasn’t simply turned enthusiastic about technology —based on recent outcomes, the market has been driven by one part of technology: the companies supplying the picks, shovels and infrastructure powering AI.

Looking for Open Space

None of this means the AI story is over. We still own businesses benefiting directly from AI infrastructure spending, and we remain optimistic about their long-term prospects.

But investing isn’t about identifying yesterday’s winners. It’s about identifying tomorrow’s.

As capital keeps crowding into the same handful of industries, we’re finding more to like elsewhere — businesses with large addressable markets, disruptive models, and founders still running the show. Regardless of what happens with AI, we believe these businesses can keep compounding value for years.

They rarely make headlines. They’re not discussed endlessly on financial television, and they’re rarely at the centre of the conversation.  In our view, the most attractive investments rarely begin with consensus. They begin with neglect.

 The crowd is still chasing the ball. We’re looking at the space they’ve left behind.

1 & 2. MSCI ACWI All Cap Index calendar year to 30 June 2026 contributions to return.

Disclaimer:

This material is prepared by Paradice Investment Management Pty Ltd (ABN 64 090 148 619 AFSL No 224158) (Paradice, we or us) to provide you with general information only.

This material is not intended to constitute advertising or advice (including investment advice or security, market or sector recommendations) of any kind. In addition, this material represents only the views of the Paradice Global All Cap team as at the time of release and is not intended, and may not, represent the views of Paradice or any of the other investment teams at Paradice. It does not reflect any events or changes in circumstances occurring after the date of publication

It may contain certain forward looking statements, opinions and projections that are based on the assumptions and judgments of Paradice with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of Paradice. Because of the significant uncertainties inherent in these assumptions, opinions and judgments, you should not place undue reliance on these forward-looking statements. For the avoidance of doubt, any such forward looking statements, opinions, assumptions and/or judgments made by Paradice may not prove to be accurate or correct.

The content of this publication is current as at the date of its publication and is subject to change at any time. It does not reflect any events or changes in circumstances occurring after the date of publication.

The information and opinions contained herein, including information obtained from third party sources which are considered to be reliable, are not necessarily all-inclusive and, as such, no representation or warranty, express or implied, is made as to the accuracy, completeness or reasonableness of any assumption contained herein and no responsibility arising for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Paradice, its officers, employees or agents.

Contributors:

Munish Malhotra

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Australian Banks: The Bull Market Is Over

30th June, 2026

Australian Banks: The Bull Market Is Over

Negative gearing and CGT reforms accelerate an earnings deterioration that was already underway

The Regime Change: From Bull to Bear

Typically rising interest rates are good news for the major banks up to a point, as higher rates widened margins and, in our view drove the earnings growth that contributed to higher valuations. That changed in April.

We believe the sector has reached a turning point. Rate rises that previously supported earnings are now eroding credit quality as suggested by additional bank provisions. Following on from this, the same environment that drove upgrades is arguably now the source of the risk.

In our view, this isn’t just a cyclical shift. The federal government’s proposed changes to negative gearing and CGT on investment property, if implemented, could make things worse — speeding up earnings decline that was already starting to show in the numbers.

Policy Shock: Negative Gearing and CGT Reform

The government’s proposed changes to negative gearing and CGT have fundamentally altered the economics of residential property investment.

Based on recent industry discussions, for investors, removing the negative gearing tax benefit may be broadly equivalent of a 1–1.5% increase in their funding costs. Put another way, it could reduce what they can afford to pay for an established property by around 25%. That’s a significant shift, not a minor adjustment.

We do not expect new dwellings to fill the gap. They typically generate lower capital gains, which makes them far less appealing to investors chasing total return. Nor do we expect demand to simply rotate from established to new stock.

Chart 1

Chart 1: Investor credit growth has been flying. That is about to change. The removal of negative gearing benefits represents an effective increase of 1–1.5% in investor funding costs, or equivalently a ~25% reduction in the price investors can afford to pay for established property.

What This Means for Housing

When investors pull back, turnover typically falls. And investor participation has been the engine of the housing market — they are currently estimated to account for around 40% of new lending flow, despite being only 20% of the banks’ back book, informed by recent property industry discussions. That gap highlights how important they’ve been to volume growth over the past two years.

We expect investor credit growth may slow from 7–8% today to around 3–4% as investor flow trends toward zero, informed by these same industry discussions. We are already seeing a negative effect on house prices with the prospect of prices remaining subdued for some time. Fewer buyers, higher effective costs and stretched affordability, may not leave much room for prices to hold up.

What This Means for the Banks

Lower house prices, slower credit growth and higher interest rates are generally a difficult combination for bank earnings. We expect downgrades may occur in coming quarters. How severe they are will depend on where rates and credit growth settle — but the direction appears clear.

On credit quality, the banks will tell you their provisioning is adequate. We don’t agree — except in the most benign outcomes. Using CBA as an example, non-performing loans have been rising for four consecutive halves. The reason this hasn’t yet translated into actual losses is straightforward: high house and other asset prices have meant borrowers in difficulty could sell and cover their obligations. No forced sales, no losses.

As prices fall, that stops being true. Financial stress will likely rise, provisioning may need to follow, and the cycle will begin to resemble previous ones.

Chart 2

Chart 2: Paradice, CBA Non-performing loans to gross loans and acceptances have been elevated since post-COVID. These have not resulted in ultimate losses principally as a result of elevated asset (house and other) prices. As those prices retreat, this buffer disappears.

Valuation

At the time of writing, the banks are trading at 1.5–3.5x book value. That’s hard to justify in a stable environment. In a deteriorating one, it’s arguably very hard to justify. When you stress-test returns on equity against lower volumes, margin pressure and higher impairments, valuations closer to book value may look more appropriate.
Earnings downgrades could put a spotlight on these multiples. When both earnings and valuation move against you at the same time, a re-rating often tends to be swift.

In Summary

The proposed changes to negative gearing and CGT are, in our view, bad for the domestic economy and, by extension, for the Australian banking sector. We are cautious on the sector and recommend an underweight position relative to benchmark.

Disclaimer:

This material is prepared by Paradice Investment Management Pty Ltd (ABN 64 090 148 619 AFSL No 224158) (Paradice, we or us) to provide you with general information only. This material is not intended to constitute advertising or advice (including investment advice or security, market or sector recommendations) of any kind. In addition, this material represents only the views of the Paradice Australian Equities team as at the time of release and is not intended, and may not, represent the views of Paradice or any of the other investment teams at Paradice.

It may contain certain forward looking statements, opinions and projections that are based on the assumptions and judgments of Paradice with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of Paradice. Because of the significant uncertainties inherent in these assumptions, opinions and judgments, you should not place undue reliance on these forward looking statements. For the avoidance of doubt, any such forward looking statements, opinions, assumptions and/or judgments made by Paradice may not prove to be accurate or correct.

Contributors:

Julia Weng

Further Information

Meet Our Investment Teams

Author Archives: Sudeep Shrestha