Australia Strategy: Summer 2023 - Equity sector strategies

About the author:

Tom Sartor
Author name:
By Tom Sartor
Job title:
Senior Analyst
Date posted:
07 December 2022, 7:30 AM
Sectors Covered:
Junior (Emerging) Resources, Bulk Materials

  • Morgans research analysts re-set their sector views, strategies and Best Ideas as markets adapt to ongoing challenges.
  • Our targeted approach to equities favours stocks with defensive attributes, pricing power and lower exposure to the economic cycle.
  • We currently favour consumer staples, healthcare, telco and financials along with select materials/energy exposures.
  • See Morgans Best Ideas for stock pick details.

A challenging macro-economic backdrop

The global economy is headed for a slowdown in 2023, but central banks will likely press on with tightening monetary policy as inflation remains above target.

While valuations have come back materially, slower economic growth will keep earnings under pressure in 1H23. We don’t expect a typical recessionary slowdown in earnings but one more akin to a mid-cycle slowdown given the strong starting point for developed market economies (employment, household savings). China’s COVID policy ‘pivot’ will also temper downside risks.

We have a neutral view on Australian equities as we see ongoing volatility from higher interest rates and a moderating pace of economic growth challenging short-term returns.

We prefer a targeted portfolio approach favouring defensives, select commodities and financials. Nevertheless, we think some tactical opportunities will emerge as uncertainty shakes investor confidence.

In addition, quality industrials and consumer discretionary valuations are starting to look attractive.

The ongoing volatility and market dislocation will present tactical opportunities, so investors are advised to be nimble with their cash holdings.

In this update, Morgans sector analysts have upgraded their ratings on the Online and Technology sectors (to Neutral) and the Consumer Discretionary sector (to Neutral/Overweight). The sector rating for Agriculture has been downgraded (to Neutral).

ASX200 Industrials 3-month revisions to consensus FY23 EPS (Index weighted):
Upgraded profit expectations for the banks have lifted aggregate EPS expectations for the ASX200, but this has masked an erosion in EPS expectations elsewhere

Growth stocks have had a choppy ride since the onset of the pandemicSource: Morgans Financial

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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