Finder makes money from featured partners, but editorial opinions are our own.

2 in 3 ASX 200 stocks are now cheap – but don’t buy just yet

Share trading_Getty_1800x1000

Shares are currently undervalued, but are unlikely to rally until inflation passes.

The latest pullback has seen 2 in 3 shares fall below their fair value, but it might not be time to buy just yet, an industry expert has revealed.

This is according to the latest findings by Morningstar, which now suggests that every single sector of the market is undervalued.

In fact, the stock analysts say 56% of companies have either a 4- or a 5-star buy rating, which besides the COVID-19 crash is the highest proportion in a decade.

But even with shares falling, it might not be buying season just yet.

Morningstar's senior equity analyst Adrian Atkins points out markets will continue to follow economic developments.

"Overall, we think the market is undervalued on a long-term view, but there is potential for near-term downside as higher rates flow through the economy," he wrote in his latest report.

The market outlook is "fairly grim"

Even with the current market falls, there's no denying asset prices will remain under pressure.

Especially as the economic story continues to develop.

According to Janus Henderson's head of multi-asset, Paul O'Connor, economists are continuing to downgrade their forecasts.

"Where the growth story is concerned, consensus economic forecasts show that the developed economies are now rapidly losing momentum, with the outlook for next year looking fairly grim," O'Connor said.

Atkins agrees, pointing out that the full impacts of inflation and rising rates might not be felt by the markets.

"We recommend some near-term caution though as there is a chance high inflation and rising interest rates could persist for longer than expected," Atkins said.

The market analyst also highlights how central banks will be different to what investors have experienced in the past.

"In a high inflation environment, central banks cannot ride to the rescue of asset prices and the economy without fanning inflation, which is the bigger issue," Atkins said.

But this short-term pain is creating a long-term gain

Even with the market falling it is not all doom and gloom.

Atkins points out that these falls are actually creating opportunities.

"On a long-term view, we think the market is undervalued, with our Australia and New Zealand coverage trading at an average discount to fair value of 14%, compared with a premium of 10% in early January," Atkins said.

Although it's a market where certain sectors will outperform.

"We see best value in energy, real estate, financial services, communications, and technology."

"We recommend sector diversity and bias toward lower risk and moat stocks," he said.

Looking for a low-cost online broker to invest in the stock market? Compare share trading platforms to start investing in stocks and ETFs.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involve substantial risk of loss and therefore are not appropriate for all investors. Past performance is not an indication of future results. Consider your own circumstances and obtain your own advice before making any trades.

Ask a Question

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our 1. Terms Of Service and 6. Finder Group Privacy & Cookies Policy.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
Go to site