Canaccord Genuity has named its three top picks for ASX 200 stocks which it believes will do well, should the US de-escalate the war with Iran in coming weeks, which it thinks is the most likely outcome.
Both the S&P/ASX 200 Index (ASX: XJO) and the gold price have been weaker since the start of the war in late February, which can present a buying opportunity.
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Volatility remains
The Canaccord team does say to proceed with caution however.
They said in a research note to clients this week:
With the US appearing to now be actively seeking an off-ramp, our central case continues to be that a resolution to the conflict will be struck over the coming weeks. However, the risk of an escalation in hostilities and more prolonged conflict is still a scenario that needs to be factored into the investment strategy equation. We remain well diversified given elevated levels of uncertainty; however, we are not bearishly positioned.
On the interest rates front, Canaccord said the recent, second rate rise in Australia, "with a bias to do more", increases the risk of a sharper slowdown in growth later this year.
They said further:
Higher interest rates will weigh on consumption and business confidence, while global uncertainty linked to geopolitical tensions also threatens to dampen external demand over coming months. Governor Bullock acknowledged that a recession is not the Bank's central case and certainly not its objective but cautioned that failing to bring inflation under control would ultimately be more damaging to employment and long-term growth.
In terms of the equities they think could recover well in the case of the war scaling back, Canaccord has picked two miners and a financial company.
Evolution Mining Ltd (ASX: EVN)
Canaccord said that Evolution offers "clean leverage" to a recovery in the gold price, and to a lesser extent copper, underpinned by its "best in class" operational delivery.
They went on to say:
Gold has pulled back sharply on higher real yields, USD strength, and liquidity-driven selling, with investors using it as a source of funds during recent volatility, creating a dislocation between price and medium-term fundamentals. Importantly, we remain constructive over the medium term, with key structural tailwinds intact, including longer-term USD debasement and strong central bank demand. As liquidity pressures ease and positioning normalises, gold should recover, with EVN providing leveraged exposure. Iran de-escalation represents a key near-term catalyst for a recovery in gold.
Sandfire Resources Ltd (ASX: SFR)
Canaccord said as the ASX's largest copper-focused miner, Sandfire provides clean leverage to a recovery in copper.
They add:
The industrial metal has pulled back on cyclical growth concerns linked to the Iran conflict, creating an attractive entry point for investors willing to look through near-term uncertainty. While cyclical demand risks remain, structural drivers (EVs, energy storage, renewables) and a tight supply backdrop support a constructive medium-term outlook. Copper appears well placed to rebound over the coming months, assuming no prolonged escalation in Iran (not our base case), with Sandfire providing leveraged exposure
Pinnacle Investment Management Group Ltd (ASX: PNI)
Canaccord said the recent pullback in Pinnacle shares represents an attractive entry point for investors looking to position themselves for a broader equity market recovery.
They say the recent weakness in the shares reflects its leverage to the broader equity market, alongside concerns around private credit.
Canaccord says the company remains a "compelling medium-term proposition, given its diversified stable of affiliates with strong funds under management growth prospects''.
