Investors that have seen $100 billion of their wealth evaporate this week can take solace in the fact that ASX shares could still be among the safest bets in this turbulent environment.
That's the assessment of Crestone Wealth Management head of equities Todd Hoare. He's urging investors to hide their capital in Australia, reported The Weekend Australian.
Hoare explained that:
From an equity perspective, Australia looks like a safer place to be. It is lower beta (that is, less volatile), valuations are optically more attractive, we're a resource-led economy, and even though inflation is proving a bit stickier, we shouldn't get the same level of entrenched inflation seen elsewhere in the world.
Why ASX shares could outperform other share markets
It's the fear of runaway inflation and the potential overshoot in interest rates that's triggering the latest market sell-off.
Central banks in the US to Australia are rushing to hike rates to curb high inflation. This increases the risk of a recession or stagflation.
Given the overrepresentation of ASX resources shares on our market, this should put us in a better position to outperform.
Diversification remains key
But Hoare warned that ASX investors with a substantial share portfolio will need to diversify. He means owning other asset classes and not just shares. He said:
It comes down to multi assets, with bonds offering a little bit more value than what they have done for a long period of time, and alternative asset classes in the mix. Even cash to some degree, even though in real terms inflation is eroding that. With very few places to hide right now, all you can do is try to lose less.
This is also where gold could shine. While the precious metal hasn't rallied, it's at least managed to hold its ground at above US$1,800 an ounce as the US share indices crashed into a bear market.
The types of ASX shares to watch
Coming back to ASX shares, the sectors that Hoare likes in a high inflationary environment include consumer staples, energy companies, and defensives, such as healthcare.
Meanwhile, Doug Turek of Minchin Moore Private Wealth Investors echoed a similar view, reported The Australian. He highlighted ASX energy, resources, and agriculture shares as places to shelter from inflation.
No need to chase shares higher
However, he warns that these shares do not look cheap as many have outperformed over the past two years.
Turek noted: "All those assets that might work better than others in times of inflation could be very pricey now. Rushing after them at this stage might not be the right move."
Investors should take their time as inflation can be volatile, Turek added. This means investors might get a second chance to buy ASX commodity shares at a better price later.
