UBS names 15 ASX stocks to play the end of the rate cycle
UBS expects the RBA to hike next week, but says sentiment is close to a floor and history favours banks and property once rates peak.
Source: Australian Securities Exchange
Mentioned
KEY POINTS
- UBS expects the RBA to hike rates by 25 bps next Tuesday, but equity sentiment is near levels that have historically marked a floor.
- Banks beat the ASX 200 in the three months after all five rate pivots UBS studied since 1995, and REITs outperformed in four of the five.
- UBS has named 15 ASX 100 stocks with the most to gain from a rate pivot, with Seek, Xero, HUB24, Stockland, CAR Group, Charter Hall and GPT Group rated Buy.
The RBA is expected to lift rates again next week, but UBS reckons the market may soon start looking past the hiking cycle, and has named 15 ASX 100 stocks best placed to perform when that happens.
Wednesday’s September inflation numbers didn’t make the case for an early finish any easier.
Headline CPI up 0.8% month-on-month vs. ests of 0.7% and double the 0.4% in August
Headline CPI up 4.3% year-on-year vs. 4.2% ests and 4.0% in August
Trimmed mean CPI up 3.5% year-on-year vs. 3.6% ests, up from 3.5% in August
Still, UBS equity strategists Richard Schellbach and Lily Huang said stocks tend to start pricing the end of a cycle once it matures. Across the last 35 years of RBA cycles, they found domestically focused sectors like banks, REITs and builders usually bottom roughly three months before the final hike.
Sentiment is close to a floor
UBS points to three gauges that suggest most of the bad news is already priced in.
Earnings downgrades: The breadth and intensity of downgrades across the ASX 200 over the past six months sits at a level that usually marks peak negativity. It has only deteriorated further from here during crises like the pandemic and GFC.
Business conditions: Survey readings on corporate profitability have only been weaker than today during crisis or recession-like periods.
Small caps: Australian small caps have underperformed large caps by close to 20% over the past year, which UBS says typically means near-maximum pessimism is already priced in.
What past pivots show
UBS defines a pivot as the point where 90-day bank bill yields peak during a hiking cycle. It has studied five since 1995: January 1995, September 2000, March 2008, December 2010 and November 2023.
Banks are the only sector to beat the ASX 200 in the three months after all five, by between 1.8% and 12.5%. REITs outperformed in four of the five.
Source: UBS, LSEG
Source: UBS, LSEG
Real estate is the sector most sensitive to a pivot in short-term rate expectations. The S&P/ASX 200 Real Estate index tumbled just over 25% between October 2025 and September 2026, but the sector has stabilised in recent weeks and bounced around 4% from lows. UBS lifted the sector to neutral three weeks ago, pointing to trough valuations and the prospect of a pivot.
The 15-stock screen
UBS screened which ASX 100 stocks have the potential to outperform on a rate pivot trade. Almost every stock on the list met these three tests:
The share price has historically risen when 90-day yields fall.
The stock has underperformed the ASX 200 since 16 January, when 90-day rates began climbing ahead of the RBA’s first hike of the cycle in February.
Valuations have de-rated against the market over that period (this applies to almost all of them).
Seven of the 15 are rated Buy. The figures below show each stock’s share price performance relative to the ASX 200 since 16 January, and its price-to-earnings (PE) ratio relative to the market, now vs. then. A PE relative of 1.24x means the stock trades on a PE 24% above the market.
Seek (SEK): down 41%, PE relative 1.24x from 1.83x
Xero (XRO): down 37%, PE relative 2.37x from 4.50x
HUB24 (HUB): down 30%, PE relative 1.99x from 3.12x
Stockland (SGP): down 22%, PE relative 0.64x from 0.78x
CAR Group (CAR): down 19%, PE relative 1.14x from 1.40x
Charter Hall (CHC): down 17%, PE relative 0.95x from 1.30x
GPT Group (GPT): down 13%, PE relative 0.74x from 0.84x
The other eight are rated Neutral, including Dexus, Endeavour, JB Hi-Fi, Mirvac, REA Group, Scentre, Vicinity and Wesfarmers.
A timing risk
UBS economists don’t think the RBA is done, and the September print has nudged near-term rate hike expectations a little higher. That makes it harder to pin down when the last hike will be, especially with oil still trading above US$100 a barrel and the AI infrastructure buildout adding to inflation pressure.
Banks, insurers and REITs have historically done well into a rate pivot. What you don’t want is a situation where inflation stays high and the hiking cycle runs for many more months.
