Warning: 3 ASX shares under pressure from rising interest rates

There is much bargain-hunting to be done right now, but there are still some stocks that you better off waiting before pouncing.

| More on:
red percentage sign with man looking up which represents high interest rates

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.”

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

An older man wearing glasses and a pink shirt sits back on his lounge with his hands behind his head and blowing air out of his cheeks as he reads about the Crown share price and anticipated AUSTRAC fines on his laptop
Ask a Fund Manager

Bargains or value traps? Expert rates 3 ASX shares that halved this year

Ask A Fund Manager: Datt Capital's Emanuel Datt gives his opinions on the stocks that have been hammered in 2022,…

Read more »

Datt Capital principal Emanuel Datt
Ask a Fund Manager

‘Always peaks and troughs’: Fundie names when ASX shares will stabilise

Ask A Fund Manager: Datt Capital's Emanuel Datt takes a look at the current turmoil in share markets and picks…

Read more »

A man in a brown bear costume holds the head of it in one hand while raising his other arm in excited victory-style pose.
Investing Strategies

‘Don’t get too bearish’: 3 ASX shares Wilsons just added

There's definitely a risk of recession in the short term, says one expert, but chances are inflation pressures will ease…

Read more »

A man in his 30s holds his computer underneath and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
Investing Strategies

‘Dip your toe back in’: Expert reveals why he’s buying ASX shares now

Not sure what's going to happen with the stock market for the rest of this year? That doesn't matter, says…

Read more »

Two boys in business suits holding handfuls of money
Investing Strategies

2 cheap ASX 200 shares to buy that no one talks about: Glenmore

Looking for hidden gems? Here is a pair of stocks one fund is holding onto tight, despite precipitous falls in…

Read more »

A woman sits at her computer with her hands clutched her the bottom of her face as though she may be biting her fingermails with a worried expression in her eyes and frown lines visible.

Will Australia plunge into a recession?

AMP economist Diana Mousina gives her prediction on whether disaster looms for both ASX shares and the general population.

Read more »

Three businesspeople leap high with the CBD in the background.
Broker Notes

Why we just bought these 3 ASX shares: fund

If you're having trouble figuring out which stocks to buy at the moment, perhaps it's worth taking a look at…

Read more »

A man in a business suit wearing boxing gloves slumps in the corner of a boxing ring representing the beaten-up Zip share price in recent times
Investing Strategies

This is what I’d do with these 3 battered ASX shares: fund manager

Ask A Fund Manager: U Ethical's Jon Fernie decides whether he'd buy, keep or cut a trio of stocks that…

Read more »