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Global investment bank Morgan Stanley has outlined some sectors to look at with all of the ongoing global uncertainty. This may mean some ASX shares are opportunities.
Lisa Shalett is the chief investment officer of the wealth management division of Morgan Stanley.
Ms Shalett noted that the Russian invasion of Ukraine caused a lot of volatility in the global financial markets, with shares being sold off and commodity prices increasing after the attack started. She expects that volatility will remain elevated. The political and economic situations are in "flux".
Is it time to buy ASX shares?
At this stage, the investment expert isn't sure if the conflict in Ukraine will create lasting or just momentary effects on the market.
Morgan Stanley is wary of additional issues that could continue to cause problems.
Three worries
One thing to consider is how the US Federal Reserve will respond to these events. Inflation, and the expectation of more inflation, has been increasing. Energy prices have risen further because of Russia's energy role in the global economy.
Ms Shalett says that Morgan Stanley thinks the Fed will continue on its path of tightening quickly this year. Fed Chair Jerome Powell has indicated that March will see a 25 basis point increase to the US interest rate.
Another issue is the potential weakening of demand for goods consumption with a shift to services like travel, leisure, live entertainment and dining. She suggested that some of the 'stay at home' beneficiaries may see some "give-back" of the increased demand they had seen. That may have an implication for some ASX shares.
The third potential issue is inflation pressure on profit margins. Morgan Stanley suggests that the pricing power to deal with inflation may not be sustainable. But if it is somehow maintained, this could lead to further inflation. Ms Shalett said the investment bank was seeing mounting pressure on earnings forecasts, with negative first-quarter guidance rolling in from many companies in the US. This was particularly applicable for some tech businesses.
Which sectors and ASX shares might be opportunities?
Whilst cautioning investors against jumping into the market straight away, Ms Shalett said investors should consider recalibrating expectations and sticking with quality names with strong cash flow and earnings achievability that aren't fully priced.
The Morgan Stanley wealth CIO pointed to financials, energy, materials, consumer services and healthcare as ripe for stock-picking ideas.
Looking at ASX shares, some of the businesses that are currently rated as buys by Morgan Stanley in some of those sectors include: Bank of Queensland Limited (ASX: BOQ), Santos Ltd (ASX: STO) and Sonic Healthcare Ltd (ASX: SHL).
