If the ASX stock market went through a decline, there are some great ASX shares I'd love to buy for my portfolio. One expert thinks there's a good chance the ASX stock market may go through a correction.
Dr Shane Oliver, the head of investment strategy and economics and chief economist at AMP Ltd (ASX: AMP), recently suggested that share prices went up "too far, too fast late last year leaving them vulnerable to a short-term correction."
Between the October low to December high, US shares went up 15.8%, global shares climbed 14.4% and Australian shares went up 12.1%.
Oliver said:
…the extent of the rally has left shares overextended and vulnerable to a pullback as central banks may not start to cut rates as early as markets are assuming, the risk of recession remains high and the creeping widening in the Israel/Hamas conflict poses a risk to global growth and inflation.
While we expect shares to provide reasonable returns this year, they are likely to be more constrained and vulnerable than last year, and worries about delays in rate cuts, recession, and geopolitics could drive a deeper first-half pullback than seen last year.
If the ASX stock market were to go through a correction, these are two ASX stocks that would be high on my buy list:
Australian Ethical Investment Ltd (ASX: AEF)
Australian Ethical is one of the most promising fund managers on the ASX. It offers managed funds and superannuation. It's focused on providing investment products that align with investors' ethics of which sorts of businesses they want to own a part of.
The superannuation division is benefiting from regular contributions due to the superannuation guarantee payments, as well as additional contributions by people attracted to the tax-effective nature of superannuation.
Australian Ethical earns management fees from its funds under management (FUM), so growth of FUM helps grow profit.
Fund managers are very scalable businesses – it doesn't cost a fund manager much more to manage another $100 million of FUM, leading to stronger profit margins.
In the three months to September 2023, it experienced $114 million of net inflows. Positive investment performance of the funds adds to FUM growth.
The Australian Ethical share price normally falls more than the market when the ASX stock market falls because a bear market harms the FUM. If there's another hefty fall for the Australian Ethical share price, I think it'd make a good buy.
Premier Investments Limited (ASX: PMV)
Premier Investments is an ASX retail share that owns a number of retail names including Smiggle, Peter Alexander, Just Jeans, Jay Jays and Dotti. It also owns stakes in Myer Holdings Ltd (ASX: MYR) and Breville Group Ltd (ASX: BRG).
When there's an economic downturn, it's understandable that households may decide to spend less at some shops. It may only require the market to think a retailer is going to go through difficulties for the Premier Investments share price to suffer.
I think it's a fairly common theme for ASX shares to outperform over time when they have international growth potential – Smiggle, Peter Alexander and Breville all have international growth ambitions.
Over time, I think the company can significantly increase its global presence, and possibly expand its portfolio of brands. Buying during market corrections could help my portfolio deliver long-term outperformance.
