2 ASX shares (not banks!) to boom from rising interest rates: experts

They’re rare, but there are businesses that aren’t banks that will benefit from higher rates. Here’s a couple of examples.

| More on:
a young woman raises her hands in joyful celebration as she sits at her computer in a home environment.

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

The Reserve Bank raised the cash rate this month, and is expected to do so again multiple times this year.

Most sectors and businesses would find this situation detrimental to earnings.

After all, money becoming more expensive makes it harder to borrow to grow or operate, and it takes away available capital from potential investors.

It’s already well-publicised that bank ASX shares will be rare winners in such an environment.

Banks will simply pass on each rate rise in full to its loan customers, and only pass it on partially to deposit clients. This easily increases their net interest margin.

But there are other businesses, believe it or not, which could benefit from higher interest rates.

A pair of experts recently named two such non-bank ASX shares that you may consider buying:

40% upgrade in earnings as rates rise

Tribeca portfolio manager Jun Bei Liu told a Livewire video that she knows of a bunch, but the pick of them would be Computershare Limited (ASX: CPU).

“That’s the number one beneficiary of higher interest rates,” she told a Livewire video.

Liu said that, for many investors, the link between a share registry business and higher interest rates may not be obvious. 

“Well, they hold a lot of cash, so their earnings are actually extremely sensitive to high rates. With every 50 basis-point increase, their earnings will lift by double digits.”

She admitted that the effect will take a while to kick in, due to residual hedges that Computershare had put in to survive the zero-interest pandemic era.

“But earnings are going to be significantly upgraded,” said Liu.

“Even at the current spot or consensus expectations for the bond yield, this company’s earnings could be upgraded somewhere between 30% to 40%.”

Light at the end of the tunnel

TMS Capital portfolio manager Ben Clark’s surprise interest rate winner is annuities provider Challenger Ltd (ASX: CGF).

He admitted it’s a company that’s had issues in recent years.

“To be honest, it’s been one I’ve got wrong in the past. This company was blown apart, particularly by the Royal Commission,” he said.

“It’s effectively Salesforce Inc (NYSE: CRM) with financial planners pushing their products, particularly bank-employed financial planners. But it was also impacted by the move in cash rates to zero. Annuities don’t sound particularly attractive when you’re locking in a 1% rate for the rest of your life.”

But during that period of turbulence, Clark feels management has reformed the business, moving away from retail products.

“It’s [now] much more closely aligned to institutional solutions for annuities, particularly things like inflation linked to annuities and more boutique solutions to problems in big LICs [listed investment companies].”

With this transformation, Clark reckons “there’s earnings momentum coming back”.

“For the first time in what feels like years, we’ve also seen the financial advice industry start to calm down,” he said.

“I think the retail side will start to pick up once you can start to lock in much more attractive yields.”

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 recommended Challenger Limited. 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

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 »

A man reacts with surprise when her see a bargain price on his phone
Investing Strategies

2 powerhouse ASX shares going for dirt cheap right now: expert

Here's a pair of stocks that made many people rich over the years but have plunged in 2022. Now it's…

Read more »

Two businessmen look out at the city from the top of a tall building.
Investing Strategies

‘Global leader at attractive prices’: expert names 2 ASX shares to buy now

Construction and pokies? Two companies that dominate life's 'essentials' might be worth investing in for troubled times.

Read more »

Ethical investor and fund manager Jon Fernie
Ask a Fund Manager

3 dividend-paying and ethical ASX shares to buy now: fund manager

Ask A Fund Manager: U Ethical's Jon Fernie names a trio of stocks that will help you through a turbulent…

Read more »