After a month of super-sized interest rate hikes in Australia and the United States, T Rowe Price Group Inc (NASDAQ: TROW) Australian equities head Randal Jenneke is nervous.
Nervous about the prospect that the shock of the rate rises will plunge the globe into a recession.
"Given our view that global monetary tightening will result in a cyclical recession in profits due to slowing activity, we retain the cautious stance in our portfolio first adopted over six months ago."
Fortunately, Jenneke reckons ASX shares still look cheap compared to their international peers, and this means there are investments worth getting into.
"We believe Australian stocks look set for further relative outperformance in the second half of the year," he said.
"Australia has created less excess local liquidity to distort domestic equity valuations, driving them to levels that were historically rich relative to fundamentals."
Considering the outlook, Jenneke's team is investing in a couple of different types of ASX shares:
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Defensive growth with pricing power
The first type that the T Rowe Price team likes at the moment is "defensive growth".
"We seek quality stocks that have good pricing power in the more defensive growth segments, such as Computershare Limited (ASX: CPU), a provider of stock registration and transfer services that has delivered good exposure to rising interest rates."
Computershare's share registry business benefits from higher interest rates because it holds a pool of dividends and distributions that are yet to be transferred to the investor.
That capital is invested and reaps better returns for the business when rates rise.
"Besides share registry, Computershare is a global provider of services for employee equity plans, corporate trusts, stakeholder communications, and corporate governance."
Computershare shares have risen 35% over the past 12 months and the company hands out a tidy dividend yield of 2%.
Buying oversold growth shares for a later revival
The other category that Jenneke's analysts are bullish on is "oversold" growth shares.
"Recently, we have taken the opportunity to add to growth companies that we believe [have] become oversold based on near-term inflation fears and higher projected interest rates," said Jenneke.
"In this category of oversold growth names, we include Carsales.com Ltd (ASX: CAR), the dominant automotive online classifieds business which in our view possesses a durable business model and good pricing power."
Carsales shares have shed more than 30% of their value since 9 December.
After months of plunging valuations, Jenneke reckons that "quality growth" ASX shares would come roaring back later this year as rates stabilise.
This is why, despite selling out of many growth stocks last year, the T Rowe Price team is turning back to them now.
"In our view, this could help the portfolio to strive to perform well as markets move beyond their current inflation and interest rate fears to refocus on the issue of slowing growth."
