Why ASX shares are ‘a safer place to be’: fundie

Australian shares can offer a shelter from the storm of volatility, according to one expert.

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Key points

  • Global markets are rattled by high inflation and interest rate hikes, but ASX shares could provide better protection than most
  • The big exposure to commodities is one reason for this but Crestone Capital warned investors still need to be well diversified
  • Some of the ASX sectors that could hold their ground better when inflation runs hot include energy, defensives, staples, and gold

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.

Motley Fool contributor Brendon Lau 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.

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