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A leading broker says there are plenty of opportunities for “high-quality” ASX stocks


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ASX shares are having a great day on Friday with S&P/ASX All Ordinary Companies Index (ASX: XAO) rose 1.9%.

And there’s more to come, according to top broker UBS.

Australian reports that UBS has upgraded its outlook for the Australian technologies and consumer discretionary sectors as well as the downgraded consumer staples.

This is the complete opposite of market sentiment throughout the year.

Why does UBS think ASX shares are about to go lower?

S&P/ASX 200 Consumer Staples (ASX: XSJ) is down 9.5% in 2022. But that’s nothing compared to S&P/ASX 200 Information Technology (ASX: XIJ), down 36%, and S&P/ASX 200 Consumer Desired (ASX: XDJ), down 24%. And that’s where UBS sees value today.

The broker changed its outlook because the ASX shares are now “valued at a recession” Next year. And the UBS team believes that this will not happen.

This is because the Reserve Bank has signaled its intention to slow down the pace of interest rate hikes.

UBS equity strategist Richard Schellbach said:

Domestic cyclicals were a notable laggard, with sectors exposed to domestic consumer spending or housing construction down about 30 percent year-to-date.

Given that we don’t expect a recession in Australia, these moves look overly pessimistic and provide an opportunity to buy some high-quality businesses with good medium-term prospects.

He argues that it is domestic cyclical ASX shares “no longer expensive”:

Despite the gloomy headlines and ongoing challenges related to supply chain constraints, resource cost pressures and recent labor market shortages, the reality is that the end demand that ASX businesses are seeing remains stable.

Schellbach notes that in 1994, Australia saw an “even steeper” rate hike cycle without a recession. The ASX stock rose 16% in 1995 and returned 11% per annum over the next five years.

The Australian Financial Review (AFR) reports that UBS is also overweight energy and mining reserves.

UBS expects the ASX 200 to return to the 7,000 mark by the end of the year.

At the time of writing S&P/ASX 200 Index (ASX: XJO) rose 1.9% to 6,769 points.


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