Banks "no", healthcare, property, mining & energy "yes" - Morgans' 2026 sector bets

A key step in many investment processes sits at the sector level. After assessing the macro environment, managers often turn to sectors to understand which areas of the market are likely to benefit or struggle under prevailing conditions. Sector analysis acts as the connective tissue between macro themes and individual stock decisions, forming the basis for portfolio overweights and underweights. Getting this call right is crucial before moving to stock selection.

According to Morgans' Summer 2026 Equity Sector Outlook, Australia enters the new year in a complex but opportunity-rich environment. The economy continues to outperform expectations, supported by strong growth among trading partners and renewed demand for critical minerals and gold. However, domestic constraints around productivity, energy costs and housing are keeping inflation structurally higher than in peer economies, signalling a higher neutral rate for longer.

Against this backdrop, the report outlines a clear preference for targeted exposure: mid- and small-cap stocks, high-quality cyclicals, and select defensives poised for recovery. Below is a deep dive into each sector view.

Banks - UNDERWEIGHT: stretched valuations and limited growth

Morgans remains underweight banks, arguing that fundamentals do not justify recent share price strength. While credit growth is holding and capital buffers remain world-class, the structural challenges are pronounced. Competition continues to pressure margins, broker penetration impacts mortgage profitability, funding costs are rising, and cost bases are proving difficult to contain. Non-interest income is also under persistent pressure.

With low expected compound growth and meaningful risk exposures, Morgans believes the sector’s risk-reward is unattractive.

Financials - NEUTRAL: insulation if inflation stays sticky

Higher for longer rates support insurers by lifting income earned on float balances, although adverse weather volatility remains a near-term risk. 

Macquarie retains its dominant index weight, but Morgans prefers value among insurers, fund managers and platforms given MQG’s recent governance and cost issues.

Staples - NEUTRAL: Coles leads the pack

After a tumultuous 2024, supermarkets stabilised through 2025. The ACCC found no evidence of price gouging, easing political and regulatory pressure, although underpayment liabilities at both majors now exceed $1 billion. 

Coles leads operationally, while Woolworths manages leadership transitions and invests heavily to repair value perception.

Consumers remain value focused, but early signs of sentiment improvement following rate cuts provide a modest tailwind.

Healthcare - OVERWEIGHT (Upgraded): sentiment turning at last

Healthcare has meaningfully lagged in Australia, but Morgans now sees the tide turning. Long-term structural drivers remain powerful, including innovation and ageing demographics. Short-term pressures such as tariff concerns, pricing headwinds and US regulatory staffing issues are easing.

Capital markets activity is picking up, M&A interest is returning, and many healthcare stocks are trading near multi-year lows. Morgans expects a sector recovery in the second half of FY26.

Telcos - NEUTRAL: strengthening free cash flow

Telcos remain a classic defensive exposure. Price rises, cost control and rational competition support improving returns on capital. TPG is highlighted as a potential medium-term market share gainer after doubling mobile coverage and resetting its balance sheet.

Infrastructure and Utilities - NEUTRAL: appealing but limited on the ASX

Infrastructure continues to benefit from CPI-linked earnings, resilient demand, and long-life contracted assets. Structural support from energy transition and grid upgrades is strong. However, investable ASX opportunities are limited following years of takeover activity. Rising real rates also remain a risk.

Property - OVERWEIGHT (Upgraded): cycle turning upward

Morgans believes commercial real estate has passed the point of maximum stress. Stabilising interest rates, tight supply and strong population growth create fertile conditions for a new multi-year cycle. Historically, property has delivered strong gains after sharp downturns, such as the 2022 to 2023 rate shock.

Retail is preferred, followed by industrial and selective high-grade office. REITs with moderate gearing and capacity to grow distributions are best placed.

Consumer Discretionary - NEUTRAL: uneven but improving

Consumer confidence has rebounded from record lows, and discretionary spending is gradually recovering. Promotional intensity remains high as households stay value-focused. However, easing inflation and a stable labour market should support incremental improvements. 

Morgans favours category leaders with strong competitive positions.

Industrials - OVERWEIGHT: set up for operating leverage

Key stocks: Brambles (ASX: BXB), Cleanaway (ASX: CWY), SGH Limited (ASX: SGH)

Technology - NEUTRAL: volatility creates opportunity

Tech valuations remain elevated and the sector is highly sensitive to rate expectations. Recent sharp corrections in WTC, XRO and TNE reflect the combination of AI enthusiasm moderating and interest rate cuts priced out. Nevertheless, medium-term fundamentals are strong.

Barriers to entry, operating leverage and AI-driven productivity remain major advantages. Morgan prefers buying high-quality names on pullbacks.

Online - NEUTRAL: strong franchises with mid-cap value emerging

Market-leading classifieds retain pricing power and strong financial performance. Multiples have reset closer to long-term averages, and Morgans expects low- to mid-single-digit volume growth into late 2026. Mid and small-cap online names nearing profitability also offer selective value.

Mining and Energy - OVERWEIGHT: tight supply and structural tailwinds

Commodity demand remains robust and supply remains tight across several critical markets. Iron ore is resilient, copper inventories are historically low, and uranium fundamentals are exceptionally strong. Long-term themes, including electrification, decarbonisation, grid expansion and energy security, provide powerful cyclical and structural support.

Agriculture - NEUTRAL: record production, mixed pricing

Key stocks: Elders (ASX: ELD), GrainCorp (ASX: GNC), Australian Agricultural Company (ASX: AAC)