There is a persistent habit in markets of extrapolating yesterday’s winners indefinitely into tomorrow. For the better part of two decades, the United States has dominated capital formation, technology listings, consumer brands and financial innovation. It became fashionable to believe this dominance was structural and permanent. History suggests otherwise.
Capital is not patriotic. It flows where it is rewarded. When incentives change, behaviour changes. And today we are seeing subtle but meaningful shifts in where capital forms, where households allocate savings, and where operating leverage resides.
Three portfolio holdings capture this rotation in very different ways: Hong Kong Exchanges, Church & Dwight, and Japan Airport Terminal. One sits at the centre of Asian capital formation. One quietly compounds household consumption through unglamorous brands. One benefits from the reopening and reinvigoration of Japanese tourism and retail spend. Together they tell a story about how capital is redistributing itself across regions and sectors.
Hong Kong Exchanges: Operating Leverage to a Structural Shift
The American equity market remains the deepest and most liquid in the world. Yet something important has been happening beneath the surface. The number of listed companies relative to GDP in the United States has been shrinking for years. Private equity, venture capital and sovereign funds have increasingly kept firms private for longer. IPO volumes have been sporadic and often cyclical rather than structural. Capital formation has moved off exchange.
At the same time, Chinese enterprises face a very different reality. After years of property sector stress, regulatory tightening and deleveraging, corporate balance sheets require recapitalisation. Debt must be refinanced. Equity must be raised. And international investors, while cautious, remain interested in selective Chinese exposure. Hong Kong Exchanges sits directly at the intersection of this need.
As the operator of Hong Kong’s equity, derivatives, commodities and clearing infrastructure, it effectively functions as a toll road for capital flows into and out of China. The financial profile reflects extraordinary operating leverage. Gross margins sit near ninety six percent. EBITDA margins approach seventy to eighty percent. Net income margins exceed fifty percent. Few businesses globally operate with that level of structural profitability.
Recent revenue trends show meaningful acceleration. After modest growth in prior years, forward estimates imply a sharp uplift in revenue and earnings. When volumes rise, the incremental margin is substantial. Exchanges are not growth businesses in the traditional sense. They are volume businesses. And when listing activity and trading momentum return, earnings can inflect rapidly.
There is an additional, often overlooked driver. Chinese households remain cash rich. Property, once the default store of wealth, has lost some of its perceived invincibility. Savings pools are deep. When retail investors turn their attention toward equities, they do so with enthusiasm. Momentum behaviour is not uniquely American.
Hong Kong Exchanges is not cheap on a headline price to earnings basis. But valuation must be considered in the context of operating leverage and margin structure. If listing and trading volumes recover structurally, earnings growth will justify the premium. Exchanges are simple businesses at heart. They monetise activity. When activity rises, profitability follows.
Church & Dwight: The Virtue of Boring
Portfolios constructed entirely around cyclical recovery and capital markets optimism tend to suffer when volatility returns. There is merit in holding businesses whose primary virtue is predictability. Church & Dwight is one of those companies. It owns a portfolio of household and personal care brands led by Arm & Hammer. Baking soda is not fashionable. Neither are cat litter, carpet deodorisers or household cleaning products. But they are used every day, in good economic conditions and bad.
Revenue has grown steadily over the past several years. Margins remain healthy. Gross margins sit in the mid forties. EBITDA margins are trending upward toward the mid twenties. Earnings growth has resumed after temporary softness. The balance sheet is manageable, supported by consistent cash generation. Importantly, the company continues to increase dividends over time. The yield is modest, but the growth is reliable. That matters.
In a portfolio containing exchanges, infrastructure and cyclical beneficiaries of tourism and capital formation, Church & Dwight acts as ballast. It does not promise explosive upside. It offers something more valuable: resilience. When volatility strikes, investors rediscover the appeal of companies that sell necessities rather than narratives. The market often underestimates the long term compounding power of slow growers. Church & Dwight is unlikely to double in a year. It is equally unlikely to collapse in a quarter. There is comfort in that.
Japan Airport Terminal: Tourism, Retail and Operating Leverage
Japan’s economic revival has been uneven but tangible. Corporate governance reforms, wage growth and monetary normalisation have altered investor perceptions. One of the most visible beneficiaries of Japan’s reopening and currency dynamics has been tourism. A weaker yen has transformed Japan into a relative value destination for international travellers. Visitor numbers have surged. Domestic travel remains robust. Airports are busy again.
Japan Airport Terminal operates and manages passenger terminal buildings at Haneda Airport. Its business model is straightforward: facilities management, merchandise sales and food and beverage operations. Revenue growth since the pandemic trough has been dramatic. Margins have normalised. Earnings have rebounded. The interesting component is retail. Airport retail carries attractive incremental margins. Once the fixed infrastructure is in place, additional passenger volume flows through with high profitability. Merchandise mix matters. International visitors tend to spend more per passenger. Currency effects amplify this dynamic.
Valuation is not stretched. The company trades at a reasonable earnings multiple relative to its recovery trajectory. Dividend yield remains modest but stable. Balance sheet metrics are manageable. Airports are infrastructure assets with cyclical overlays. They benefit from secular travel growth but exhibit short term volatility during economic shocks. Japan Airport Terminal combines these characteristics with exposure to inbound tourism trends that appear durable rather than fleeting.
The Common Thread: Capital Allocation and Behaviour
At first glance, an exchange operator in Hong Kong, a baking soda manufacturer in the United States, and an airport terminal operator in Tokyo share little in common. Look more closely. All three monetise behaviour.
Hong Kong Exchanges monetises trading and listing behaviour. When Chinese enterprises recapitalise and retail investors deploy savings, volumes rise.
Church & Dwight monetises habitual consumer behaviour. Households clean, wash and care for pets regardless of the macro narrative.
Japan Airport Terminal monetises travel and retail behaviour. Tourists shop and dine as they pass through infrastructure nodes.
Investing often reduces to understanding behaviour and incentives. Where is capital flowing? What are households doing with savings? Which sectors enjoy operating leverage to small changes in volume? The United States will remain central to global markets. But capital formation is becoming more geographically dispersed. Asian exchanges stand to benefit. Japanese tourism and retail infrastructure are capturing renewed flows. Defensive consumer franchises continue compounding in the background. Portfolios that recognise these shifts do not need heroic assumptions about perpetual growth. They require only a willingness to observe that cycles turn and behaviour adapts.
TAMIM Takeaway
Markets reward flexibility. The narrative of permanent American dominance in capital markets is being tested by structural shifts in private equity, Chinese recapitalisation needs and Asian retail flows. Hong Kong Exchanges offers operating leverage to that shift. At the same time, prudence demands ballast. Church & Dwight provides steady compounding in a portfolio otherwise exposed to cyclical and capital market themes. Japan Airport Terminal captures the resurgence of tourism and retail spending in a country undergoing economic normalisation. Together they reflect a simple principle: follow the behaviour of capital and households, not the noise of headlines. Exchanges, airports and even baking soda can tell you more about the direction of markets than the latest technology slogan.
Disclaimer: Hong Kong Exchanges (HKEX), Church & Dwight (CHD) and Japan Airport Terminal (JAT) are held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.
Over recent weeks investors have been overwhelmed by economic data that refuses to tell a coherent story. Growth appears acceptable, employment remains strong, hiring softens, wages rise, and confidence fluctuates. Depending on the framework applied, the same information supports either optimism or concern. The instinct is to decide which dataset is correct, yet that instinct assumes the economy still behaves in the familiar cyclical manner that guided investing for decades. Increasingly it does not. We are not observing a traditional slowdown. We are witnessing a reorganisation.
Economic cycles are predictable in structure even if unpredictable in timing. Activity rises, inflation emerges, policy tightens, growth moderates, and eventually policy eases. The variables typically move together and when they diverge analysts assume delayed reporting or measurement error. Today divergence is persistent rather than temporary. Output expands while hiring softens, vacancies decline while unemployment remains low, and productivity improves while business confidence weakens.
These outcomes cannot coexist inside a normal late-cycle slowdown. They can however coexist during structural adjustment. When an economy changes composition faster than statistics adapt, indicators appear inconsistent even though the underlying system is functioning logically. The confusion therefore is not noise within a cycle but evidence the framework itself is evolving.
Employment is migrating rather than contracting
For generations labour weakness signalled recession because jobs disappeared broadly across sectors. Current conditions look different. Demand in several traditional categories eases while demand in other areas expands at the same time. Care services, maintenance work, logistics support, and operational roles continue to grow while analytical and routine professional tasks stabilise. Government employment fluctuates according to policy decisions rather than private demand, and participation changes with demographics rather than business confidence.
Aggregate employment numbers remain steady because activity shifts rather than collapses. The economy reallocates workers instead of releasing them. Historical models interpret slower hiring as approaching contraction, yet the reality resembles redistribution. Unemployment therefore becomes less informative and the composition of work matters more than the quantity of workers.
The productivity acceleration is real
Technological adoption normally influences profits long before it alters national statistics. Companies become efficient, margins expand, and only years later productivity figures confirm the change. The present moment differs because improvement is measurable almost immediately. Businesses now deploy tools that enhance output per worker without requiring proportional hiring. Routine cognitive tasks compress into minutes rather than hours and operational processes increasingly occur with automated assistance.
The impact does not eliminate work but modifies the type of work required. Roles centred on repetition diminish while roles centred on judgement expand. Statistics designed for industrial labour struggle to capture this transition, creating the impression that activity weakens when efficiency actually improves. Markets anchored to historical relationships therefore misinterpret efficiency as fragility.
Why unemployment no longer signals recession reliably
Traditional downturns emerge when businesses reduce staff because demand collapses. Today labour demand can soften without rising unemployment because the labour pool itself changes. Retirement increases as populations age, education participation expands, caregiving responsibilities grow, and discouraged workers temporarily step aside. Individuals outside the workforce are not classified as unemployed, so the unemployment rate remains low even while hiring moderates.
Investors waiting for a sharp rise in joblessness may therefore wait for a signal that no longer arrives in the same manner. The economy can cool without triggering the alarms markets learned to trust.
The market is experiencing a positioning recession
Prices often react more to expectations than to outcomes. Over recent years portfolios were constructed for binary scenarios of severe contraction or uninterrupted expansion. Reality delivered neither. Growth slowed yet persisted, inflation declined yet remained present, and policy tightened yet avoided collapse. Repeated recalibration created volatility independent of earnings deterioration. Companies continued operating reasonably well while valuations compressed due to uncertainty about the macro narrative.
This produces the sensation of weakness without the substance of recession. A positioning recession occurs when exposure shrinks faster than profits, and historically it resolves through time rather than panic.
Technology leadership narrows before it broadens
Early phases of technological transformation reward providers of infrastructure and efficiency rather than providers of applications. Productivity tools initially concentrate gains among a limited set of businesses and investors interpret narrow leadership as late-cycle excess. In structural transitions narrow leadership more often signals early adoption. As understanding spreads, benefits diffuse across industries, cost structures improve, and smaller firms regain competitiveness.
Market breadth expands not because growth accelerates sharply but because predictability improves. This sequence has repeated across previous industrial shifts and the pattern begins with concentration and ends with participation.
What historically marks the turning point
Markets rarely reverse when data becomes positive. They stabilise when surprises diminish. Investors require confidence in forecasting more than they require perfect conditions. The change is behavioural before it is visible, as valuation compression slows and quality companies stop declining on neutral news. Commentary remains cautious while behaviour changes underneath, which is why transitions are recognised retrospectively rather than in real time.
Implications for investors
The investment environment shifts from macro prediction toward business selection when cycles give way to structural change. Companies with durable demand, manageable leverage, and rational capital allocation regain importance once discount-rate volatility fades. Periods characterised by uncertainty but not deterioration typically produce the largest dispersion between price and value, as forced selling occurs even though long-term prospects remain intact. Active decision making therefore becomes more valuable than directional forecasting and patience transforms from emotional discipline into analytical advantage.
TAMIM Takeaway
The discomfort investors feel does not originate from hidden collapse but from outdated expectations. The economy is not weakening in a traditional sense, it is reorganising at a pace unfamiliar to models designed for earlier eras. Transitions distort signals and distorted signals create volatility, yet volatility during transformation often coincides with declining long-term risk rather than rising risk.
Opportunity rarely arrives alongside clarity. It arrives when the framework investors rely upon no longer explains the world accurately. Understanding that distinction is where future returns are prepared.
This week’s reading reflects a period of adjustment across markets, economies and lifestyles as expectations reset. Volatility in gold has raised questions about whether a broader regime shift is underway, while movements in the US 10-year Treasury toward 4% highlight ongoing sensitivity to AI-driven valuations. Global equities are stabilising as technology concerns ease, but the underlying message remains clear: interest rates, policy signals and investor positioning continue to shape market direction. Beyond financial markets, the reassessment is just as evident in everyday life. Cooling house price growth points to changing affordability dynamics, while more people are stepping away from traditional career paths through mini-sabbaticals and extended breaks. The rise of “workations” reflects a lasting shift in how work and lifestyle are being balanced. And, in a reminder that perspective drives both markets and behaviour, a single image from space shows how quickly our view of the world can change.
Over the past fortnight global equity markets have experienced a sharp and synchronised pullback. This week has added an important nuance. After the initial aggressive selloff, markets have not collapsed further, instead they have begun to oscillate. Large intra-day moves, sector rotations, and short bursts of recovery have replaced the one-way decline. That behaviour matters.
When markets fall in a straight line, the driver is usually positioning and forced selling. When they begin to swing violently in both directions, the market is no longer trying to find sellers, it is trying to find a price. Understanding the difference is critical because it tells us whether we are entering a deteriorating economic regime or simply adjusting to a new valuation framework.
At present, the evidence points strongly to the latter.
The Real Trigger: A Discount Rate Shock
The cleanest explanation for the recent market move is not earnings deterioration, geopolitical headlines, or even recession fears. It is the repricing of the discount rate.
Coming into the year, markets were positioned for a relatively comfortable environment. Inflation gradually cooling, central banks preparing to ease, growth remaining resilient, and investment in technology infrastructure continuing. That combination supports higher valuation multiples, particularly for growth and long-duration equities.
Over the past two weeks bond markets shifted that assumption. The expected path of interest rates moved slightly higher and further out. Not dramatically, but enough to change valuation mathematics.
Equities represent future cash flows discounted back to today. When the hurdle rate rises, even modestly, the present value of those future earnings falls.
The sequence we observed followed the textbook pattern:
-Long duration technology weakened first -High multiple growth followed -Small caps lost sponsorship -Broader indices eventually reacted
This is the signature of a valuation adjustment rather than an earnings collapse.
Why This Move Felt So Fast
Fundamentals rarely change in days. Positioning does. Entering 2026, investor exposure was concentrated in a handful of consensus themes: large cap growth, artificial intelligence infrastructure beneficiaries, and a broad expectation of small cap recovery. Many strategies were carrying leverage, both explicit and implicit.
When interest rate expectations shifted, selling did not occur gradually. Risk models forced it. Volatility targeting strategies reduced exposure. Leveraged portfolios cut positions. Systematic funds de-risked simultaneously. The market temporarily became flow-driven rather than information-driven.
This is why the selloff appeared indiscriminate across sectors and geographies. The market was not reacting to new economic damage. It was adjusting crowded positioning to a slightly different macro assumption.
Why Rising Yields Matter More Today
Not all rising yields are negative for equities. In a healthy expansion yields rise because growth strengthens. Today the concern is different. Markets are beginning to accept that interest rates may not return to the extremely low levels experienced over the past decade. Several forces are reinforcing this idea:
-Inflation falling but gradually (arguable) -Persistent fiscal deficits increasing bond supply -Central banks maintaining policy flexibility rather than emergency easing -A higher estimate of neutral policy rates
The implication is subtle but powerful. Valuations across asset classes may need to anchor to a structurally higher discount rate. In that environment even strong businesses can decline in price without any change to their long term outlook.
Liquidity Is Quietly Tightening
Behind the scenes, liquidity conditions have also shifted. Large government bond issuance absorbs capital that previously flowed into risk assets. Quantitative tightening removes marginal support from financial markets. Funding adjustments ripple through leveraged strategies.
Liquidity does not need to collapse to matter. It only needs to move from supportive to neutral. That transition alone is enough to compress valuations.
What This Is Not
Importantly, current market behaviour does not yet resemble a systemic crisis.
-We are not seeing widespread banking stress. -Credit markets remain orderly. -Earnings downgrades are limited.
Those characteristics define recessions and financial crises. Instead we are seeing a repricing correction, painful but fundamentally different. The distinction matters because valuation corrections recover differently from economic contractions. They typically stabilise once rates stabilise, not when growth reaccelerates.
Why This Week’s Price Action Matters
This week markets stopped falling in unison and began trading both directions. That shift suggests forced selling is moderating. The market is transitioning from liquidation to price discovery. Typically the sequence follows this pathway: First there is a sharp decline driven by flows, a volatile consolidation and then a gradual differentiation between companies
We appear to be entering the third phase. When markets begin rewarding balance sheet strength and earnings visibility even while indices remain unsettled, the foundation of recovery is forming beneath the surface.
The Australian Context
Australian equities often react with a slight delay to global interest rate volatility. The marginal buyer is international capital while domestic superannuation flows rebalance more slowly. Small and mid caps sit directly at the intersection of those forces. When global funds de-risk, liquidity contracts quickly. When stability returns, the rebound is equally sharp. Technology and SaaS companies feel this most acutely because they behave like long duration assets. Their valuations depend more on future growth assumptions than immediate cash flows. This explains why share prices can fall despite unchanged company performance. The valuation multiple changes, not the business.
What Historically Signals the Turn
Markets rarely wait for central banks to actually cut rates before turning. Instead, they tend to stabilise once interest rate volatility stops rising. Historically the sequence is consistent: bond yields peak and stop drifting higher, valuation compression comes to an end, high-quality growth companies begin to steady, and broader market participation gradually returns. Importantly, this recovery phase usually starts while economic news still feels uncertain rather than obviously improving.
What This Means For Investors
The current environment is uncomfortable but informative because it separates price volatility from genuine business deterioration. Periods like this tend to reward companies with strong balance sheets, predictable cash flows, durable demand, and disciplined capital allocation, while penalising businesses valued purely on distant expectations. Importantly, forced selling often creates temporary mispricing in companies whose long term outlook has not changed, and historically this is where long term investors have added the most value.
Tamim Takeaway
The recent market weakness appears driven primarily by valuation adjustment rather than economic damage. Interest rate expectations moved, positioning unwound, and liquidity tightened marginally.
This week’s stabilisation suggests markets are transitioning from forced selling toward price discovery.
Corrections caused by discount rate repricing tend to end when rates stabilise, not when economic growth accelerates. As volatility subsides, quality businesses typically recover first, followed by broader market participation.
Periods where prices move faster than fundamentals rarely persist. They instead create opportunities for patient capital prepared to distinguish between temporary valuation compression and permanent impairment.
Markets almost never ring a bell at the bottom. They rarely turn because investors suddenly feel optimistic. They turn because someone with better information decides the price is wrong.
That signal is not a rally. It is a takeover. We believe we are entering the early stage of a new takeover cycle, particularly in Australia, and in our experience this matters far more than trying to guess the next move in interest rates. Markets recover after confidence improves. Acquirers act before it.
Why M&A Leads Markets
Fund managers think about flows, volatility and returns. Corporate buyers think about owning the entire business for the next decade. That difference explains why takeover activity consistently precedes market recoveries.
Executives see demand trends, customer behaviour and competitive positioning long before they appear in analyst models. When they commit balance sheets to acquisitions they are effectively telling you earnings durability is stronger than the share price implies. The market waits for evidence. Buyers act on conviction. Every major recovery starts this way. The transactions come first, the rerating follows.
Why Conditions Now Support Deals
These ingredients typically create takeover cycles: cheap valuations and available capital. All now exist. Interest rates expectations have settled again and are no longer surprising markets. Small and mid caps remain well below long-term valuation averages despite operational performance holding up. At the same time private equity has accumulated significant undeployed capital after a prolonged lack of IPO exits.
For buyers the risk has flipped. Waiting risks paying more later, while acting today locks in long duration assets at discounted prices. That is the moment transactions begin.
Why Australia Becomes the Target
Australia repeatedly becomes a hunting ground in this phase of the cycle. The market contains many specialised leaders operating in niche or oligopolistic industries, but liquidity is thin. When global investors reduce exposure prices fall quickly regardless of business quality.
That creates a gap between business value and market value. Strategic buyers understand this well. Historically they have acquired Australian healthcare providers, software platforms, infrastructure services and financial businesses during similar conditions. We are starting to see that pattern re-emerge.
Private Equity Does Not Wait for Optimism
Public investors require momentum. Private equity requires stability. After two years of limited exit opportunities, funds must deploy capital. They do not need markets to rally immediately. They only need confidence earnings will not deteriorate materially. Operational improvement and valuation normalisation over time drive their returns. Public markets buy growth once it is obvious. Private equity buys before it is recognised.
Takeovers Cluster
The first transaction always looks isolated. Then another appears in the same sector. Boards reassess their own valuation gap, competitors react defensively and sponsors accelerate timelines. Suddenly it looks like a trend. In reality negotiations were occurring months earlier. By the time markets acknowledge a takeover cycle, a large portion of the opportunity has already passed.
What This Means for Investors
During takeover phases valuation is no longer set purely by trading. It is set by transactions.
Public markets price near term earnings multiples. Strategic buyers price replacement cost and long duration cash flow. The difference creates premiums and lifts valuation floors across sectors. Importantly this does not require strong economic growth, only stability. We appear to have reached that point.
Historically the sequence is consistent. Selective acquisitions occur quietly, premiums reveal undervaluation, investors reposition across similar companies, and broader small caps outperform. The takeover is not the end of the move, it is the start of it.
Where We Are Focused
Our approach in this environment is straightforward. We look for businesses where strategic ownership makes sense, where industry consolidation is logical and where valuation sits well below private market value.
Recently we have spent considerable time analysing one particular Australian opportunity that fits this framework unusually well. It is profitable, operates in a consolidating industry and carries strategic relevance significantly above its current market value. We will share more once positioning is complete.
Tamim Takeaway
Market recoveries rarely begin with optimism. They begin with informed buyers acting while sentiment remains cautious. As takeover activity increases it raises valuation floors and draws investors back into the market.
Historically the strongest returns in small and mid caps occur during this phase, not after it becomes obvious. The buyers are returning quietly and by the time the market fully recognises it, prices are usually already higher.
