Each week, corporate advisory firm Barclay Pearce highlights the key trading themes of the week, along with which companies and sectors Stockhead readers should be keeping their eye on.

The shift in tone this month by the US Federal Reserve marks a key development for investors to be aware of, Barclay Pearce says.

And speaking with Stockhead this week, BP Equities Trader Joseph Raad highlighted some positioning opportunities that may develop as the macro outlook changes.

The Fed’s June policy meeting included an important shift; instead of the ‘2024 at the earliest’ mantra it stuck to throughout the pandemic, committee members indicated the next rate rise will probably happen earlier – in 2023.

That may not seem like a big change, but in the context of global liquidity settings it can have an impact.

For example, US Fed committee member Jim Bullard followed the bank’s meeting by indicating rates may need to rise faster (in 2022), prompting a sharp selloff before markets stabilised last week.

With inflation almost sure to remain topical through the middle of the year, Raad said the shifting rates outlook was on the radar of analysts before the Fed’s shift.

“We’ve been speaking with other brokers, and there was quite a general consensus forming that it wasn’t going to be ‘2024 at the earliest’,” he said.

“So (the Fed’s shift) wasn’t a huge surprise for us, and I think plenty of people in the market saw it coming.’

And despite the brief spike in volatility it’s also “reassuring to know they are aligning themselves with a more realistic outlook”, Raad said.

Interest rate beneficiaries

In that context, Raad highlighted banks & financials as a sector that could be poised to benefit as the global economic recovery continues.

While Australia’s major banks have performed well, small cap financial stocks have tracked under the radar compared to other sectors.

In the consumer finance space, Raad’s pick of the bunch is Wisr (ASX:WZR), which recently completed a $50m funding round.

“What I like about Wisr is it’s just a simple business model,” Raad says.

“Their q/q revenue and growth have been consecutively growing for 19 quarters now and with that steady model, you may not get rapid capital appreciation, but I think the risk there is minimised.”

He added the platform is now also backed by a AAA credit rating from Moody’s, and said the $50m funding round was a sign that institutional investors are backing the model.

“We saw their share price move quite strongly off the back of the loan origination news before that cap raising,” Raad said.

“So essentially now they just have a bigger cash base to put towards growth. Adding it up I think it’s a company that while the stock might not move drastically, it’s an investment that makes sense in this space.”

Speaking of safer bets, at the larger end of the financials space Raad flagged major insurer QBE (ASX:QBE) as a potential winner.

The stock got hit hard in the crisis, but insurance more broadly is viewed as a beneficiary of a rising rates environment, where companies can generate a higher yield return on their invested float.

“Big insurance players have a positive exposure to rising bond yields,” Raad said, noting that QBE hasn’t yet eclipsed its pre-COVID high of around $15.

“Obviously it’s easier said than done to reach pre-Covid levels, but the potential for gains is there,” he said.

Being selective on gold

Another asset class that posted a notable move in the wake of the Fed’s rate announcement was gold, with prices coming off the boil over the last fortnight.

The revised rates outlook prompted a round of strength in the US dollar, which saw USD-denominated gold fall back below US1,800 an ounce after making a run at US$1,900/oz.

For Raad and the team at Barclay Pearce, those dips offer a buying opportunity in a broader uptrend for the precious metal as inflation picks up.

He noted that while gold continued to trade flat into the end of last week, a number of ASX-listed gold plays posted a string of gains.

“I think that’s a testament to the fact investors saw that big drop (in gold) as irrational and expect to see it retest the US$1,800 level relatively soon,” he said.

Taking that into consideration, “we saw a great opportunity to enter gold, and we’ll continue to accumulate on those dips.”

One of Raad’s leading ASX picks in the gold space is West African Resources (ASX:WAF), which is currently trading at around $1.

“We do tend to see WAF act as a proxy to gold prices,” Raad said.

“And it’s a multiplier in both directions so if you catch it at the right time when you think gold’s going to go up, you can make really good gains.”

“So there’s good potential there and I also like the stock long term. It’s a bit of a safer bet at the small-cap end, they’re producing well and managing their cost base,” he said.

As an example of how ASX plays can give good proxy exposure to movements in underlying gold prices, Raad noted that while gold traded flat into the end of last week, WAF posted three consecutive daily gains.

“To me that shows a lot of confidence (in the outlook for gold),” he said.

“Bellevue Gold (ASX:BGL) are similar in that sense. So they’re a few of the gold plays we’re looking at.”

Ultimately, Raad’s said the changing macro environment will provide opportunities for investors that can remain agile.

While markets have undoubtedly benefitted from rock-bottom interest rates, broader disruptions will only come from inflation spikes that force central banks to hike rates much quicker than expected.

For now, the main priority is to assess which sectors can benefit from the orderly normalisation of monetary policy as the global economy emerges from the pandemic.

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.

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