Chart of the Week: Market selloff reshapes the ASX opportunity set
Stocks haven’t looked this attractive since enactment of the April 2025, US tariffs.
This week’s insights come from our Australian Equity Market Outlook report for Q2 2026.
It’s been an incredibly turbulent start to 2026. Buoyed by firming commodity prices, the ASX 200 performed well through February’s reporting season, finishing the month at a record high of 9,200 points.
This all came unstuck in early March, when the US and Israel launched coordinated strikes on Iran, killing Supreme Leader Ali Khamenei and triggering the most severe oil market disruption in decades. By the close of the quarter, the ASX 200 had fallen 8% from its peak, settling near its lows of November 2025.
Eventually, this conflict must resolve. And on a longer view, Australian stocks haven’t looked this attractive since April 2, 2025. We wouldn’t rule out another leg down if the US and allies fail to open the Strait in the coming weeks, but the margin of safety is materially wider than it was three months ago, when valuations were stretched across much of our coverage.
War, rates, and AI disruption surface opportunities
Across sectors, energy looks compelling even after its tremendous start to the year, up almost 35%. Hydrocarbon majors Woodside and Santos are still undervalued, the market seeming to ascribe little value to their development pipelines and the production growth to come.
The technology sector, a darling not long ago, is under serious pressure as investors reevaluate software moats in the age of artificial intelligence. We think AI will function as a sorting mechanism, not a universal eraser of competitive advantages. Businesses with proprietary data or strong network effects look better protected.
High-duration, growth-style stocks have been hit hardest by the AI selloff and higher interest rates. Value-style stocks have held up much better, with commodity prices, and particularly energy prices, in an upswing.
Selloff reshapes opportunity set
Surging oil prices and higher rates have reshuffled star ratings across our coverage. Real estate, which offered few opportunities while rates were falling, now screens as attractive, with almost all stocks undervalued.
The tech sector has been doubly punished by higher rates and AI disruption fears, but this has created opportunities among the stronger businesses. Banks are generally expensive, and value across the miners has thinned out on stronger commodity prices.
The full report is available to Morningstar Investor subscribers and trialists.
You can find previous editions of Chart of the Week here.
