Australia Strategy Autumn 2023: Equity sector strategies

About the author:

Author name:

By Tom Sartor

Job title:

Senior Analyst

Date posted:

03 April 2023, 7:00 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 in equities currently favours stocks with defensive attributes, pricing power and commodities-linked revenues.
• We currently favour quality cyclicals, healthcare, telco and financials along with select materials/energy exposure.
• See the Morgans Best Ideas for stock pick details.

Banking jitters reveal new worries, but also opportunities

Cracks in the financial system appear as the lagged effects from a rapid succession of interest rate rises expose some vulnerabilities. However, unlike previous episodes of financial distress, this time, regulators appear to be on the front foot responding decisively with emergency liquidity to prevent broader contagion. These measures give the global banking system some breathing space, but it’s too early to say if there won’t be more casualties.

There are reasons for cautious optimism and a major banking crisis looks unlikely. Unlike in 2007, there do not appear to be large credit losses hidden in opaque instruments on bank balance sheets. Post-GFC reforms mean that large global banks have more robust capital and liquidity buffers.

Risk also presents opportunity, and we see a path for investors to succeed in the new regime. Investing in the energy transition and Australian/Emerging Market equities with a value/quality bias currently offer the best risk/return profile for a market fretting about what is to come.

As tailwinds from commodity prices fade, we think above-average earnings growth for the market will be harder to come by. Accordingly, we prefer a targeted portfolio approach favoring select commodities (particularly Energy) and quality cyclicals.

We think tactical opportunities will emerge as the ongoing global financial shockwaves shake investor confidence. We think investors will do well tilting toward value and quality.

In this update, Morgans sector analysts have downgraded their ratings on the Consumer Discretionary and Agriculture sectors to Neutral and Underweight respectively.

Results season comparative EPS revisions to CY2023 forecasts: Australian EPS revisions held their own through reporting season. Cyclicals held up against global peers which we believe points to the conservatism in analyst forecasts but also the resilience of the economy.

Source: Morgans, Refinitiv IBES. Revisions since Jan 1 2023

Find out more

If you would like more information, please contact your adviser or nearest Morgans office. 

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.