The second half of FY22 was challenging for ASX 200 investors, with the S&P/ASX 200 Index (ASX: XJO) dropping 13.5%.
A number of factors are weighing heavily on investors' minds as we commence the new financial year.
These include the war in Ukraine and its impact on energy prices and international geopolitical stability, and rapidly rising inflation and interest rates both here at home and abroad.
The result so far has been a flight to quality. That means more investors are seeking safety in high-quality ASX 200 value shares and avoiding the riskier growth shares category.
This mindset is likely to last for a while. Remember, many investors have never been through periods of significantly rising interest rates or inflation before. So, uncertainty is likely to reign in FY23.
One professional investment manager says investing over the next decade will be harder, but long-term ASX investors should seek opportunities.
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In a downturn, there is opportunity
James Holt is the director of investment solutions at diversified financial services company, Perpetual Limited (ASX: PPT).
In a recent article published on the ASX website, Holt says Perpetual believes "there is always value to be found somewhere in the market".
Holt says:
It's easy to feel bearish given the number of challenges investors are confronting. Fire, flood, pandemic, inflation, war, rising interest rates and market volatility are dominating the headlines.
While Perpetual considers that investing over the past decade was easier, with all equity markets rising from March 2009 lows, investing in a predicted "dangerous decade" of higher volatility, inflation and geopolitical uncertainty will be harder.
Holt adds: "As always, there are gems in the chaos".
Which ASX 200 shares do you buy in a downturn?
While Holt does not name names, he does discuss sectors that look appealing to Perpetual right now.
Holt says:
In this environment, stocks of interest to Perpetual may include those which could benefit from food and energy inflation or that mine green metals like copper, nickel, rare earths and cobalt which are required to fuel the rise of electric vehicles.
Some businesses also benefit from rising rates, like insurers as their investment returns rise.
With long locked-down consumers looking for experiences, we also like parts of the travel and tourism sectors.
Holt says his team avoids low-quality companies "with poor business models, no earnings, too much debt or which are badly managed in our opinion".
