2023 to surprise investors with opportunities

Yasmine Raso

Senior Journalist, Financial Newswire

17 January 2023

Maple-Brown Abbott has encouraged investors to search for other opportunities for the year ahead, as doubts around corporate earnings and rising commodity prices continue longer than originally forecasted.

This sentiment was echoed by Chief Investment Officer, Garth Rossler, as climbing interest rates will help “rein in” inflation but at cost of declining economic growth.

“At a market level, we see risks among the premium-rated growth and yield stocks where valuations have not yet fully adjusted to a higher interest rate environment,” he said.

“There has been little in the way of consensus earnings downgrades for Industrials in Australia, but we are starting to see some movement in the US. Of most interest is what is happening in the Tech sector, which enjoyed an extraordinary uplift in earnings during COVID, though those earnings have started to decline.

“Meanwhile, we see opportunities for investors in the energy and broader resources space over the medium term, albeit with the risk of shorter-term volatility given the uncertainties associated with the re-opening of China. Commodity prices remain elevated and we see potential for this to last longer than expected, with supply constrained by underinvestment and ongoing geopolitical turmoil.

“With the rapid rise in interest rates already observed, and the likelihood of further increases, we see opportunities in companies that benefit from this shift such as insurers and banks. We also see a number of opportunities in out-of-favour companies with depressed earnings or multiples.”

Co-portfolio manager of the Australian Small Companies fund, Phillip Hudak, also signalled the possibility of material earnings downgrades for Australian small caps in the next 12 months.

“For investors, this means a shift towards companies with predictable earnings or structural earnings growth that are less at risk of earnings downgrades in an economic slowdown,” he said.

“Australian small cap market valuations are now looking reasonable relative to long-term averages.

“However, investors need to be selective in the current environment. We see an opportunity for quality cyclicals over the course of 2023 as COVID beneficiaries fully unwind and cyclical earnings expectations are re-based with potential oversold share prices.”