The ASX stocks the experts are betting on as storm clouds gather

Prominent fund managers are betting Australia’s resources sector will cash in on booming energy prices and surging demand for metals, despite fears sharply higher interest rates could spark a global recession.

As high inflation and rising rates continue to dominate the investment landscape, leading fund managers this week shared their views on market conditions at an event held by philanthropic investment company Future Generation.

Regal’s Phil King is tipping a “multi-year bull market” for many mining stocks.Credit:Brook Mitchell

A common view from several of the investors was that despite geopolitical uncertainty and the threat of rising rates, the backdrop remained positive for mining and energy stocks, which are a key part of the ASX.

Regal Funds Management chief investment officer Phil King and Tribeca Investment Partners portfolio manger Jun Bei Liu both said Australia’s sharemarket was in a strong position, thanks in part to the resources sector’s prospects.

In contrast, there was little optimism towards the beleaguered cryptocurrency sector, with King predicting crypto would “die a long, slow death.” Several fund managers also remained wary about the ongoing impact of rising interest rates, with Australian discretionary retailers seen as a potential weak spot in the market next year.

The ASX200 is down about 3 per cent this year, but the local bourse has still performed much more strongly than most markets this year, with Wall Street’s S&P 500 down about 15 per cent over the same period.

King was perhaps the most overtly bullish on the mining sector, predicting it could help the Australian market do “quite well over the next couple of years.”

“Certainly in many mining and energy stocks, I think we’ve got the start of a multi-year bull market,” King said.

“I think there are some similarities between now and what we saw in the 1960s and ’70s. Back then, the Australian stock market – I think mining and energy represented as high as 70 per cent of the Australian stockmarket, compared to 30 per cent today,” King said.

The fund managers is well-positioned if a global recession hits.Credit:Louie Douvis

Oil prices have surged this year due to Russia’s invasion of Ukraine, and Europe is also battling severe shortages of gas. The energy crisis has caused gas prices to surge, helping to drive sharply profits for big ASX-listed energy players such as Woodside and Santos.

Speakers including King and Eley Griffiths portfolio manager Ben Griffiths suggested some had underestimated the world’s demand for fossil fuels, and several of the money managers were positive on how the local market was placed.

Griffiths said Australian shares were priced in line with long-term average valuations, and he believed that despite “headwinds,” the economy could continue to outperform.

“We will be an outperformer amongst developed economies in terms of our growth profile,” he said.

Liu argued the situation facing Australia’s market was “fantastic” compared with other markets. She said there could be a dip in earnings next year, but the economy remained in good shape, and it was benefiting from its heavy exposure to commodities.

However, not all of the fund managers struck such an optimistic note. Some cautioned 2023 would be tougher as interest rates inflicted a bigger hit on spending.

Wilson Asset Management’s Geoff Wilson reckons investors should brace for a hard landing.Credit:Juanita Wilson

Investment veteran Geoff Wilson warned higher interest rates were starting to eat into consumer spending, inflation was still high, and he thought the biggest risk was that the higher prices would feed into wage inflation.

“I’m more for a harder landing than a softer landing,” Wilson said.

Meanwhile, portfolio manager of global fund Holowesko Partners, Mark Holowesko, said that despite a rally of recent weeks, he was convinced Wall Street was still in a bear market, citing high valuations and the sheer amount of liquidity that was still to be removed from the market.

“I believe we’re in a bear market in the United States, which is very important for markets around the world,” Holowesko said.

While several fund managers thought Australia’s market was well-placed, there was much more variation in the stock picks of four local managers who were asked to nominate a tip.

QVG Capital portfolio manager Tony Waters nominated Ridley Corporation, an animal feed business, saying the company had improved since ditching underperforming assets.

Liu picked private hospital business Ramsay Health Care, arguing the business was “recession proof” and well priced after private equity bidder walked away.

Paradice Investment Management portfolio manager Tom Richardson tipped Qantas, arguing the recovery in travel spending had further to run, and that the domestic duopoly with Virgin Australia would support profits.

Griffiths went with Monadelphous Group, a mining services business, arguing the sector could benefit from wider profit margins as businesses overcame difficulties attracting labour and raising prices.

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