With reporting season just around the corner ECP Asset Management partner, Andrew Dale, says investors should adopt a more defensive approach to their investments as the outlook for the second half of 2026 is unclear.
“While it has been a gruelling six to 12 months in markets, with many winners and losers, the focus now is how companies will perform for the full financial year come June 30.
“Companies will soon provide an indication to the market of whether they will miss or beat their expectations, and what their outlook is for the next 12 months.
“The sense we are getting is that there is a lot of uncertainty. The waters are muddied,” he says.
With inflation targets still under pressure, Dale says consumer sentiment is somewhat resilient however he is expecting a shift, placing pressure on retail companies.
“While the consumer has been resilient, behaviour is starting to shift and we expect households will start to reallocate across categories rather than maintain overall expenditure.
“When you consider inflationary pressure – be it wages, energy, freight, and other general costs of doing business – you will see most companies communicate expectations of a more difficult outlook ahead, especially in the retail space.
“JB Hi-FI (ASX: JBH) will be insulated from these shifts, given its resilient business model and ability to move in and out of different categories. However other companies, particularly furniture providers like Nick Scali (ASX: NCK) and Temple & Webster (ASX: TPW), will face a more difficult outlook.
“Companies like Lovisa (ASX:LOV), may be a little more recession proof given the target market demographic of 15 to 25 year olds. The large supermarkets, such as Woolworths (ASX: WOW) and Coles (ASX: COL) also tend to be a safe haven for investors given their dependable defensive positions, even though they will see some cost pressures coming through.”
Regardless, he says, a more difficult outlook is expected by most companies.
“Defensive is the way to play it leading into the back half of the year.”
Dale adds opportunity also exists in other parts of the market.
“In the tech and AI space, we are confident about Megaport (ASX: MP1). It is making changes to its business through Latitude and has also recently completed a large capital raise. It is a company that is almost at the beginning of its next leg of growth.
“TechnologyOne (ASX: TNE) has also done well embracing AI into its business as it continues to grow.
“ResMed (ASX: RMD) is also a key pick in the healthcare sector. There are concerns around GLP-1s impacting demand for sleep apnoea products, but the company has around 90 per cent market share in this market. It has also beaten its earnings now for five consecutive times and continues to deliver margins that are outstanding. It’s an obvious one to invest in,” he says.