We are already seeing investors adjust their portfolios, with some booking in losses to offset their capital gains, while others are buying stocks that have underperformed and are making a comeback.
How the ASX has performed?
It’s encouraging to note that the local share market has performed strongly over the past few months. The Aussie share market has gained about 6.5% this quarter (from April to 21 June), with the ASX200 hitting another record high on 16 June (7406 points). This rally has been predominantly supported by the financial sector – a standout sector as employment is back at pre-pandemic levels, meaning people are buying more houses, borrowing more, and spending more. The consumer spending sector is also another standout sector, supported by behaviourial shifts in the way we spend our time and money. The outlook for the share market remains bullish, with predictions of a continued rally on the ASX200.
The share market has undoubtedly been supported by the performance of the Australian economy. GDP grew by 1.8% in the March quarter, which beat market predictions of 1.5% and this growth positions Australia as one of the fastest growing economies in the developed world.
As we turn the page on a new financial year, let’s discuss some of the sectors that could perform well in FY22.
Some of the best sectors for investment in the new financial year
Aussie agriculture proving popular
Addressing the Australian Farm Institute’s ‘Agriculture and trade in disrupted economies’ conference in Toowoomba in mid-June, Reserve Bank of Australia governor Philip Lowe said that Australia’s agriculture sector played a significant role in underpinning the nation’s economic recovery with its unwavering performance throughout the pandemic.
The sector has faced numerous weather-related hardships, such as the droughts and bushfires, however the agricultural industry has remained resilient. Farm outputs are up 40% since the middle of 2020, and rural exports are also at a record high. The Australian Bureau of Agricultural and Resource Economics (ABARES) predicts that local farmers will sell a record $66 billion worth of produce this year – and it probably won’t stop there. The National Farmers Federation has developed a road map for the Aussie agriculture industry to reach $100 billion in revenue by 2030.
As part of reaching this goal, the government introduced a new visa system to allow foreign workers to gain employment on farms to help sow and harvest crops. This will be a further lifeline to farmers who were impacted by COVID.
On top of this, prices of agricultural commodities have also increased substantially – poultry prices are up 23% this year, hog prices are up 64%, beef prices are up 16% and Australian white sheep ewes are selling at record levels. In mid-June, an ewe sold for a record-breaking price of $988 a head, which is almost $400 above reserve thanks to recent surging demand.
And demand for Australian produce is set to continue. Off the back of the Australian and UK trade deal, our beef and lamb will be increasingly encouraged to be sold in the UK, likely boosting Aussie demand.
In terms of investment opportunities in this space, companies such as Elders (ASX:ELD), Australian Agriculture Co (ASX:AAC), and Graincorp (ASX:GNC) could outperform this year. Other companies related to the sector could also be set to deliver positive results.
Technology sector: To tech or not to tech?
Despite the tech sector dramatically falling over 30% earlier this year, since late May, Aussie investors have started to heavily buy back into the sector as it continues to rally off the back of the Nasdaq rallying. Investors are rotating back into tech (despite interest rates and inflation concerns) and are focusing on the basics of investing and looking for companies that have growing earnings.
Additionally, the US is going head-to-head with China in a race to become the leader in manufacturing semiconductors, which are materials that are used in electronic circuits. This means that the technology you buy could soon be manufactured in the US, as opposed to being made in China or Asia. The US government recently pledged $250 billion towards building the US’s semiconductor manufacturing facilities, artificial intelligence research, robotics, and quantum computing.
How can Aussie investors take advantage of this? ASX listed company, Altium (ASX:ALU), is a circuit board company based in California and works closely with Microsoft and Dell. Recently, Altium provided a trading update and reiterated its FY21 guidance – citing double-digit revenue growth expected in the second half of this year.
Similarly, BrainChip (BRN) develops neutral processing chips used in artificial intelligence. They have experience working in defense, at airports, and in cyber security. BRN is also based in the United States. BRN shares are doing well, with performance up 30% this year.
Numerous tech companies have upgraded their outlooks for the new financial year, which looks to be promising.
Financial sector: Banks in favour
Bank profits are likely to rise with the economy growing at a rapid rate. Not only are profits back, but dividends are back and potentially share buybacks too.
A development which is important to note is that in December 2020, APRA relaxed its guidance on banks’ capping shareholder payouts at 50% of profits. This was a big shift in APRA’s position from April in the same year, when it suggested banks should “seriously consider” suspending dividend payments as COVID-19 impacts hit the economy.
When it comes to the banks, consider Commonwealth Bank of Australia (ASX:CBA) which has regained its place as the biggest company in Australia. Westpac (ASX:WBC) is also doing quite well, as is ANZ (ASX:ANZ) and regional banks like Suncorp (ASX:SUN) and Bendigo and Adelaide Bank (ASX:BOQ).
Beyond the banks, other parts of the financial sector to consider are listed investment managers that are reporting growing funds under management, like Pendal (ASX:PDL), Platinum Asset Management (ASX:PTM), and Janus Henderson (ASX:JHG).
Thinking of investing?
The past year has seen a number of stocks boom and reach new heights, which can be quite alluring for some investors. However, it is always best to do your research and bear in mind that past performance is not an indicator of future performance. Check out our article on how to pick stocks. If ever in doubt, seek the advice of a financial adviser.
Cover image source: Hand Robot/Shutterstock.com
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