The Reserve Bank of Australia (RBA) has already cut the official cash rate twice in 2025 and economists are expecting another cut today, with more in the coming months. Assuming that happens, there are some ASX shares that look like clear buys to me.
High inflation and high interest rates were detrimental for asset valuations, but I'm expecting that to reverse in the coming months and years.
While the US tariff situation remains uncertain, I think certain ASX stocks are well positioned to materially benefit from rate cuts.
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ASX property shares to win?
For me, there's one clear area of opportunity. Property businesses like ASX real estate investment trusts (REITs) have suffered from both the higher cost of debt (hurting rental profits) as well as the headwind for property valuations.
Warren Buffett once explained why interest rates are so important to valuations:
The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature…its intrinsic valuation is 100% sensitive to interest rates.
Currently, there are a number of appealing ASX property shares that are trading at large discounts to their underlying value. I'm thinking of names like Rural Funds Group (ASX: RFF), Centuria Industrial REIT (ASX: CIP), Charter Hall Long WALE REIT (ASX: CLW) and Dexus Industria REIT (ASX: DXI).
With predictable rental income, sizeable distributions and large asset discounts, I think they're primed to outperform the S&P/ASX 200 Index (ASX: XJO) over the medium-term.
I also believe property fund managers could be strong performers because a turnaround in conditions for the real estate sector could mean a boost to funds under management (FUM), both through positive property revaluations and clients allocating more money to funds managers such as Centuria Capital Group (ASX: CNI) and Charter Hall Group (ASX: CHC).
Other areas that could benefit
I also believe that defensive ASX shares could beneficiaries of the rate cuts. I'm thinking of names like Transurban Group (ASX: TCL), APA Group (ASX: APA) and Propel Funeral Partners Ltd (ASX: PFP) that look appealing at the current valuations. In my view, they look too cheap, particularly with RBA rate cuts seemingly inbound.
ASX retail shares could also be appealing. However, they're unlikely to see a uniform increase in sales. So, I'd pay closer attention here to the valuation and potential for a sales recovery. Names like Accent Group Ltd (ASX: AX1) and Adairs Ltd (ASX: ADH) could be brave, contrarian ideas.
