There are still fears the United States could go into a recession this year following the Federal Reserve's aggressive attempts to stamp out inflation by raising interest rates at a rapid pace over the past year.
And if the US goes into a recession, the rest of the world may follow.
This creates some choppy waters for investors to navigate.
Look for undervalued shares
Eric Marais, a global funds analyst at Orbis Investment Management, says a recession in the US won't change too much for his team.
At the Allan Gray Orbis Investment Forum in Brisbane on Wednesday, Marais said if a recession eventuated then, "We just keep doing what we do and we try to find undervalued shares."
This is called value investing. It usually involves going against the herd as a 'contrarian investor'.
Events like a recession can actually make this easier. Inevitably, pretty much all ASX shares will get dragged down by the negative market sentiment that will ensue.
And that's the key.
Many share prices won't deserve the shellacking they'll get in a recession. Their business fundamentals will remain sound, but market sentiment will drag their share prices down for a while.
And that's the time to snap them up. Value investors kinda love recessions for this reason.
We recently learned that the most famous value investor of them all, Warren Buffett, has stashed about $35 billion away in cash to take advantage of upcoming buying opportunities.
Which ASX shares offer value today?
Orbis Investment is owned by Allan Gray, which markets itself as a contrarian investment fund manager.
So let's take a look at Allan Gray's Australia Equity Fund (Class A) fund to see which ASX value shares the fund was holding as of 31 March.
The top five ASX shares and their relative portions in the fund are as follows:
- Newcrest Mining Ltd (ASX: NCM) 11%
- Alumina Limited (ASX: AWC) 8%
- Woodside Energy Group Ltd (ASX: WDS) 8%
- QBE Insurance Group Ltd (ASX: QBE) 8%
- Ansell Limited (ASX: ANN) 6%
We happened to notice that Allan Gray recently upped its stake in Ansell stock.
The fund manager bought 1.3 million additional shares for $34.9 million on 9 May. This means it picked up the shares at an average price of $26.70.
The purchase took its stake in the protective gloves manufacturer from 15.69% to 16.72%.
Surprisingly, stocks go up in 40% of recessions
Marais sought to reassure investors by noting that stocks have actually gone up in 40% of previous recessions.
Recessions don't usually last that long. They're often not that bad for stocks … US recessions of the last 120 years, stocks go up in almost 40% of them, which is quite surprising …
I think it may not be the worst thing provided we focus on our individual stocks.