After a very difficult year so far in markets, investors may be looking around for opportunities, said Amber Sinha, senior portfolio manager of global equities at CIBC Asset Management.
Investors have rotated out of growth stocks as central banks raise interest rates to combat inflation. Companies whose cash flow is expected further in the future have seen that future cash flow discounted as interest rates rise, Sinha said.
A weaker economy is also having an impact, as rate hikes have caused the economy to slow.
“As absurd as it sounds, this is by design,” Sinha said. “The Fed needs to almost send us in a recession for inflation to be well-behaved again.”
However, he said the full effect this will have on the economy is still unknown.
In terms of opportunities, Sinha said to look for high-quality stocks that have lost value just because of the rotation into cheaper stocks. These include companies that are less discretionary in nature and have solid fundamentals.
“When the economy does see more difficult times next year, I think, fundamentally, these stocks will have a lot of support,” he said.
Investors should be more wary of cyclical and discretionary stocks with direct exposure to the economy. Their prices are more attractive than they were a few months ago, but a lot of other uncertainties remain, namely energy prices and geopolitical tension in Europe.
For these reasons, Sinha said to avoid stocks with a high level of sensitivity to the economy, at least for now.
For example, given the situation in Europe, Sinha said he is more inclined to look to the U.S and Asia.
In terms of stocks and sectors that he likes, he recommends those less sensitive to the economy, such as consumer staples and utilities.
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