There might be many differing opinions about where ASX shares will head, but there seems to be consensus on one thing: it will be a volatile ride.
According to a Wilsons memo to clients, stock markets have been stressed since December after a transition in investor attitude.
"Risk aversion in equity markets has shifted as inflationary pressures and higher bond yields have placed downside pressure on equity valuations."
Since then, the war in Ukraine plus a surge in oil and food prices have really poured petrol on the inflation flame.
"As the risks of rapid [monetary] tightening and the Ukrainian conflict play out, Australian equity markets will remain susceptible to volatility although Australian equities are proving relatively resilient compared to global equities."
Considering this, what are some of the ASX shares that the team at Wilsons reckon are the best ones to hold at the moment?
'Defensive growth' is the answer
To answer this, Wilsons analysts note how the mood has changed ever so slightly over the last few weeks.
"The narrative has changed slightly over the last month with defensives starting to outperform the market," read their memo.
"Sectors like healthcare and consumer staples, along with utilities, have performed well against a backdrop of higher uncertainty around the US Fed's and RBA's hiking expectations and the impact this will have on the economy."
The team is forecasting inflation will cool off by the end of the year, but the outlook on rates and bond yields remain "murky".
All this has led to a preference for "defensive growth" ASX shares.
"With the market concern on global economic growth due to China's COVID lockdowns, the Russia/Ukraine conflict and a period of aggressive hiking from the US Fed, we think it is sensible to have an above-average allocation to defensives," the memo read.
"Our picks are healthcare, insurance and telco."
Specifically, Wilsons names these four stocks as fitting the bill:
- CSL Limited (ASX: CSL)
- Insurance Australia Group Ltd (ASX: IAG)
- Telstra Corporation Ltd (ASX: TLS)
- Healthco Healthcare and Wellness REIT (ASX: HCW)
The team is still staying away from the more adventurous growth shares, like in the technology sector.
"We believe that the next couple of months will continue to be an edgy period for markets as rates rise," read the memo.
"We think a barbell tilt towards both cyclical/value and defensives is sensible. We are looking for more clarity from central banks and a more benign outlook for bond yields to rotate back to growth."
