• Morgans research analysts re-set their sector views, strategies and best ideas as unfolding forces challenge investors.
  • Our targeted approach in equities currently favours stocks with defensive attributes, pricing power and commodities-linked revenues.
  • We currently favour high quality defensive exposures in staples, healthcare, telco and financials along with select materials/energy exposure.

Patience required in Equities

The combination of slowing economic growth and central banks still focused on above-target inflation will remain a challenging backdrop for equities. The recession now taking hold across advanced economies means some short-term weakness is in store. We’re looking for a brightening in the US economic outlook to provide a more decisive trigger to improve the broader market appetite for risk assets including equities.

Poor investor sentiment and elevated cash levels should ensure any pullback in asset prices will be relatively short-lived, so it’s important for investors to remain nimble. The inflection point for risk assets may be difficult to time, so investors should have a strategy for managing staged exposure, in our view.

After a promising start to the year, China's economic growth has recently slowed down, falling short of expectations as shown by recent weakness in key economic data. The central government had anticipated a post-COVID recovery in consumer spending that could drive growth to the c5% GDP growth target. However, due to concerns about housing market stability, this recovery faltered.

To address the issue, key interest rates were reduced to encourage banks to lend and kick-start a recovery in the real estate sector, which accounts for more than a quarter of China's economy. At this stage, stimulus looks set to be fairly modest, so the near-term outlook still depends primarily on the extent of second round effects on consumer confidence and spending.

We think tactical opportunities will emerge as key economies work through the challenges posed by stubbornly resilient inflation. We think investors will do well tilting toward value and quality.

In this update, Morgans sector analysts have made few changes, but have downgraded their rating on the Energy sector to Overweight (from Strongly Overweight).

ASX Small Industrials - valuation dispersion: The significant valuation spread between small caps vs large highlights the level of risk aversion in current markets.

Source: Morgans Financial, Refinitiv IBES

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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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