UBS, a global financial services company providing advice and investment banking services, is reportedly advising clients to shift away from ASX-listed banks and real estate stocks. The firm recommends increasing exposure to mining and healthcare sectors. This strategic pivot comes as Australia’s property market faces a potential slowdown, contributing to a “three-pronged attack” on the economy. Higher oil prices, rising interest rates, and recent government budget plans impacting residential property tax are cited as key pressures. The local sharemarket has already seen a nearly six per cent tumble since late February, driven by a mix of inflation and slowing growth concerns.
UBS strategist Richard Schellbach states the budget “raises the risk of pressuring the property market, adding another headwind to stock prices.” This potential property market unwind, and its negative wealth effect, has long been a “tail risk” for investors. UBS’s analysis of past property downturns, including the 1990-1991 stagnation and 2018-2019 correction, showed banks, real estate, and construction consistently lagged the sharemarket. Commonwealth Bank and Westpac are identified as vulnerable to slowing mortgage growth. Developers like Stockland and Mirvac face significant exposure. Indirectly, a slowdown could impact hardware retailers Metcash and Wesfarmers, furniture providers such as Adairs, Temple & Webster, and Harvey Norman, and car sales for Eagers Automotive and ARB Corporation.
Conversely, UBS advises “overweighting” mining stocks due to robust earnings, adding BHP and Santos to their preferred list. Industrials with domestically focused businesses, insulated from housing slowdowns, are also expected to perform well, including mining services, government infrastructure, and defence. In healthcare, despite weak sentiment, UBS notes these stocks trade at an “unprecedented” price-to-earnings discount. Schellbach suggests “patient investors could be rewarded,” highlighting the sector’s macro defensiveness and uncorrelation to global macro, oil risks, and potential Aussie housing recession risks.
