Stockmarket turmoil brought on by Donald Trump’s tariffs is uncovering some market bargains

The carnage on markets is beginning to uncover some bargains.

But in a fast-evolving environment where a single utterance can send shares soaring, or crashing, picking the right stocks can be a minefield.

Mark Humphery-Jenner, Associate Professor of Finance at UNSW Business School and an active investor himself, warns against panic selling.

“It’s a good way to lock in your losses and miss a recovery,” he said. “Conversely, do not get sucked into holding onto losers.”

The good news for Australia is that our economy is among the least exposed to the US, where tariffs will have the greatest impact. However, our strong trade ties with China, ultimately the main target of the tariff regime, mean that’s where the pain will be most keenly felt.

Also encouraging is that after a period of sustained equity growth, in which valuations for many of Australia’s largest companies became stretched, prices have now fallen back to more sensible levels.

Research by UBS found that by July last year, Australian growth stocks on the ASX200 were trading at their fourth-highest valuations in 25 years.

In the lead-up to and wake of the tariff turmoil, some of Australia’s fastest-growing companies (excluding miners) have been savaged. Buy-now-pay-later firm Zip is down 50 per cent since February, while WiseTech has fallen 40 per cent. Other globally geared stocks, such as Macquarie Bank, Flight Centre, Breville, and James Hardie, are down more than 20 per cent.

While stocks remain slightly above their long-run average in terms of price-to-earnings ratios, UBS says valuations are beginning to look reasonable.

“Investors with time horizons that allow them to ‘look through the cycle’ may be tempted to begin detaching themselves from the near-term noise and instead use this sell-down as an opportunity to pick up quality businesses at reasonable prices,” UBS strategist Richard Schellbach wrote to clients.

UBS has analysed which stocks perform best in periods of crisis dating back to 1973, categorising conditions on a matrix of low, medium, and high inflation, and low, medium, and high growth.

In low-growth periods, technology, media and telecoms (TMT) stocks tend to outperform. If that low growth is paired with high inflation, UBS recommends adding gold miners to a portfolio. Banks tend to underperform in low-growth environments.

However, in periods of high inflation and moderate growth, TMT stocks are the worst performers.

Mr Humphery-Jenner said one option may be to look at US defence stocks, which are generally immune to tariffs as they are already onshore and can pass on costs to the US government.

“As the world rearms, and potentially seeks to make deals with the US government, they could be relatively well positioned,” he said.

Also sticking with opportunities in the US is Andrew Macken, chief investment officer of Montaka Global Investments. He believes now is a good time to pick up some financial stocks. If Donald Trump’s policies force reshoring, large projects will need financing.

“They are positioned well for both a short-term resolution to Trump’s tariff policies, and the longer-term tailwinds from US onshoring. Finally, probabilities for major tax relief and financial deregulation are increasing, which will likely boost US financials even further,” he said.

Mr Macken likes KKR, the global fund manager, which is down 35 per cent from its February peak, even after jumping 16 per cent overnight.

Mr Humphery-Jenner added that at some point, investors should consider when to “dip your toe” back into the Mag 7, high-growth US tech stocks, some of which have limited exposure to China.

“Some of them have strong earnings potential, and their P/E ratios have fallen considerably. Companies such as Meta and Google could benefit,” he said.

Closer to home, Goldman Sachs has assessed the impact on Australian miners if Chinese demand for iron ore drags on prices.

Goldman’s Paul Young believes BHP and Rio Tinto will continue to perform strongly, with price targets for both about 25 per cent higher. He cites resilient cash generation and strong balance sheets as key strengths.

Fortescue, however, has limited upside, the research suggests.

Other companies Goldman sees as well-positioned include diversified miner and BHP spin-off South32, mineral sands group Iluka Resources, and Bluescope Steel.

This article contains general information only and does not constitute financial advice.