There is much encouragement from experts to buy up ASX shares after they've been heavily discounted in recent months.
In fact, FNArena founder Rudi Filapek-Vandyck only warned a few days ago that the proportion of "buy" recommendations from the analyst community is at an all-time high.
"The only precedent over the past 16 years occurred in 2011 when financial markets were gripped by anxiety that debt-laden Greece might turn into the bombshell that would cause the implosion of the European Union."
But it's not a matter of just hoovering up everything in sight.
There are still many stocks that face hardships for a while yet.
Rising interest rates worry some sectors more than others
The big hurdle in Australia at the moment is rising interest rates.
The Reserve Bank of Australia increased the cash rate this month by 25 basis points. But many economists reckon there are more to come.
In such an environment, the team at Wilsons warn that there are some risks to consider for ASX shares:
- Lower disposable income
- Lower house prices
- Higher cost of debt for businesses
- RBA policy error
These risks mean that there are some parts of the market Wilsons would avoid when bargain-hunting.
"We believe that investors should remain underweight sectors such as retail and housing to avoid the risks cited above," it noted in a memo to clients.
"We think this is sensible until there is more certainty around the quantum of rate hikes over the next year."
The retail sector is the most direct victim of Australians with less money to spend.
"This could be a very challenging period for retailers," read the memo.
"Consumer confidence has already been impacted by expectations of higher interest rates and higher inflation; further declines could lead to a substantial slowdown in consumer spending."
And housing is not far behind, with mortgage repayments set to rise and dampening demand.
"In 2009-10, rate hikes were quickly followed by a period of weaker prices," stated the Wilsons team.
"For Australian equities, risks remain elevated on sectors and companies associated with housing activity."
Stocks that could be under pressure
The memo named 3 particular stocks that will be impacted from the housing slowdown:
Wilsons is concerned about sales listings falling, which would affect the earnings of a classifieds site like Domain.
Real estate developers Mirvac and Stockland face multiple pressures.
"The housing development sector should be weaker from lower demand for housing (if prices fall)," the memo read.
"Elevated timber and steel prices could add to build costs. These companies are unlikely to be able to pass these costs onto buyers."
