If you're not sure where to invest in the current environment, you're not alone. The banks were the place to be just a couple of months ago, but all that changed last month.
It has been a similar story for ASX energy shares and lithium shares, which are seemingly in and out of favour with the market on a regular basis.
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So where should ASX investors turn to now?
The team at Morgans has been busy figuring out which sectors are more likely to outperform in the second quarter of 2023.
In respect to financials, the broker believes that recent banking jitters have created an opportunity for investors. It said:
There are reasons for cautious optimism and a major banking crisis looks unlikely. Unlike in 2007, there do not appear to be large credit losses hidden in opaque instruments on bank balance sheets. Post-GFC reforms mean that large global banks have more robust capital and liquidity buffers.
However, the broker believes that diversified financials are the better option right now, with GQG Partners Inc (ASX: GQG) and QBE Insurance Group Ltd (ASX: QBE) its top picks. It commented:
We continue to see the sector trading at reasonable multiples, offering a good hedge against inflation, and having defensive properties as we potentially head into a slower global economy.
In addition, the broker believes the healthcare sector is a great place for investors to be right now thanks to long-term tailwinds. It explained:
The long-term demand drivers like an increase in complex and chronic conditions will underpin earnings growth. Although the sector is not immune to cost pressures in many instances price increases for services have been pushed through.
Moving on, the sector the broker rates the highest right now is the energy sector, with Santos Ltd (ASX: STO) and Karoon Energy Ltd (ASX: KAR) the broker's top picks. Morgans explained:
The warm northern winter and recession fears have driven the recent energy correction. However, these events don't solve for structural supply challenges, which we think can see energy prices again ratchet higher in late 2023.
Finally, the telco sector is high up on the broker's list right now, with NextDC Ltd (ASX: NXT) and Telstra Group Ltd (ASX: TLS) getting the thumbs up. It said:
Demand for quality secure digital infrastructure remains robust and sector tailwinds look likely to delivering shareholder returns.
All in all, Morgans believes there are plenty of opportunities out there for investors, which bodes well for portfolios this quarter.
