Earlier this week, the Reserve Bank of Australia (RBA) cut the cash rate for the third time this year. Following the reduction of the cash rate to 3.60%, I think there are a number of ASX shares that look appealing.
Broadly, when the interest rate is reduced, it should be beneficial for asset prices. The legendary investor Warren Buffett once explained why that's the case:
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.
With that in mind, the following ASX shares look like buys to me amid a falling interest rate environment.
Rural Funds is a real estate investment trust (REIT) that owns a variety of farms across Australia, including cattle, almonds, macadamias, and vineyards.
I think rate cuts are a powerful tailwind for this business because they can reduce interest costs (helping rental profits and distributions) and increase the value of the properties.
The business is benefiting from organic rental growth which is linked to inflation, or there's fixed annual increases, plus market reviews.
It expects to pay a distribution yield of 6.2%, which is a strong level of passive income in this era of reducing interest rates.
The reason why I think the stock is so attractive is that it's trading at a discount of around 40% to the net asset value (NAV) as of 31 December 2024.
Centuria is a fund manager focused on providing real estate investments and investment bonds.
The fund manager can benefit from rate cuts in the same way as Rural Funds – with lower interest costs and an increase in the value of properties (helping funds under management (FUM) grow organically). But the business can also benefit if clients decide to allocate more money to Centuria, with a more positive environment for property prices.
The ASX share expects to report 2.5% growth of operating earnings per security (EPS) to 12 cents in FY25, and the distribution per security will be higher by 4% to 10.4 cents. That translates into a distribution yield of 5.3%.
I think this ASX share could be one of the biggest beneficiaries of rate cuts in the S&P/ASX 200 Index (ASX: XJO).
Bailador is an investment company that focuses on relatively small technology businesses with big potential. These tech names normally have attractive unit economics, international growth potential, and deliver repeat revenue.
As interest rates reduce, I think high-growth businesses may become more highly valued by investors (if they aren't already). Plus, Bailador aims to pay a good dividend yield based on its portfolio value, which may also become increasingly attractive for income-seeking investors.
Based on the monthly update for July 2025, the ASX share is trading at a 30% discount to its post-tax net tangible assets (NTA) per unit of $1.68, which I think is a very attractive valuation.
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