Morgans 'Best Ideas' for April and navigating inflation, conflict and AI

The Australian economy continues to defy expectations of a sharper slowdown. Australia is benefitting from solid trading-partner growth and renewed demand for key exports including LNG, copper and gold. 

However, domestic growth is constrained by sub-par productivity, sticky services inflation and a restrictive RBA policy stance. Corporate earnings growth is expected to remain slower and more cyclical than in comparable developed nations. 

Despite the challenging backdrop, we scored February as the strongest reporting season in three years. Banks delivered standout results and associated earnings upgrades, and many ASX50 franchises are demonstrating resilience through self-help, cost reduction and margin control. 

This supported a higher-than-average rate of large-cap stocks exceeding expectations at their results, and a resumption of modest earnings growth for the ASX200 this year. While the macro overlay creates near-term uncertainty, underlying corporate fundamentals in Australia look solid, and that matters for patient, conviction-led investors.

Below are some of the key sector themes and outlooks shaping our equity sector strategies. 

Iran conflict: Global economic implications

The economic implications are global

Inflation and rates expectations: Higher energy costs feed directly into headline inflation across the major economies, creating inflationary risk that could delay or reverse interest rate easing cycles that markets had been pricing for much of the last year.

Trade: Disrupted trade flows beyond energy are creating supply chain stress across manufacturing, agriculture and consumer sectors globally. Shipping bottlenecks are beginning to resemble pandemic-era disruptions, with lead times extending and inventories thinning.

Currencies: The US dollar has strengthened on safe-haven demand, pressurising emerging market currencies and effectively tightening financial conditions in developing economies. 

Risks are ratcheting higher: Possible scenarios from here

Upside: A credible de-escalation could see oil prices retrace sharply, but a rapid normalisation of trade flows isn’t guaranteed. War-risk insurance premiums tend to unwind slowly, and shippers are unlikely to fully return to pre-war routing until after a sustained stability. The economic relief may therefore lag the geopolitical resolution.

Downside: A prolonged conflict with lasting damage to Gulf infrastructure risks embedding a structurally higher cost of energy into the global economy for an extended period. Persistent supply disruption could entrench inflation, force central banks into higher-for-longer postures and compress equity multiples as risk premia are repriced across asset classes. Recession risks rise as a function of such a stagflationary shock.

Iran conflict: Australian economic and sector implications

The Australian economy

Australia imports roughly 90% of its refined fuel despite being a net energy exporter, with reliance on diesel felt most in transport, agriculture and mining. These cost pressures are being passed through to customers, adding to already sticky inflation. Markets are pricing further RBA rate hikes, but the risk of a sharper growth slowdown in the second half of 2026 is rising as the conflict persists.

Stagflation a risk to corporate earnings

Energy revenues may improve for exporters, but cost pressures are intensifying across the broader economy, while consumers are squeezed by higher mortgage rates and energy-driven cost-of-living pressures. Consensus earnings estimates face downgrade risk, particularly in sectors with limited pricing power or high transport and energy exposure.

Most affected | Negative earnings pressure

• Airlines - exposed to jet fuel / diesel cost inflation.
• Transport & logistics - margin pressure is likely.
• Agriculture, food & beverage - exposed via diesel, fertilise and chemical inputs.
• Construction - higher materials haulage and plant running costs.
• Consumer discretionary - higher petrol prices erode consumer spending capacity.

Least affected | Insulated or positively exposed

• Energy exporters - clearest beneficiaries of higher USD-denominated LNG, oil and thermal coal revenues.
• Utilities & infrastructure - contracted or regulated CPI-linked cost pass-through mechanisms built into pricing frameworks.
• Healthcare - relatively inelastic demand and government-linked revenues
• Banks & diversified financials - lenders/ insurers are indirect beneficiaries of higher-for-longer rates, offering a partial hedge.
• Technology & software - low physical input costs and subscription revenue models shield from direct energy costs.

AI boom, not bubble

The AI revolution represents the most profound technological shift since the Internet, but its trajectory and timing remain uncertain. Unlike the dot-com era, today’s leaders have strong balance sheets and profitability, supporting continued investment. Investors need exposure, but capturing value across the ecosystem while managing obsolescence risk will be critical.

International: Opportunity beyond the Mag 7

The AI revolution is accelerating, and the Magnificent 7 are no longer the only way to participate. While US tech remains important, rotation within tech toward semiconductors, infrastructure and industrials reflects where AI is driving earnings. Momentum is strongest in Asia, where expanding ecosystems, governance reform and attractive valuations offer diversification.

Australia: Value through the uncertainty

AI-driven uncertainty has pushed Australia’s tech and online sectors to more attractive levels. Leaders like REA, CAR and SEK retain scale and data advantages, while TNE and WTC benefit from deep integration in customer systems.

Recent weakness looks indiscriminate and overlooks that AI will create both winners and losers. Despite valuation risks, the potential upside remains too significant to ignore.

AI investment momentum continues to build, reinforcing the durability of the trend. For investors, the challenge is balancing exposure with selectivity as the opportunity set broadens beyond the obvious names.

Positioning for structurally higher inflation/rates

RBA cash rate vs expectations 

Expectations for the path of domestic rates have up-shifted by the equivalent of 6 hikes (1.5%) in only 7 months. 

Two stocks added to Morgans' 'Best Ideas'

The Morgans ‘Best Ideas’ are our highest-conviction stock calls designed to deliver the most attractive risk-adjusted returns over the next 12 months.

We added two stocks and removed Woodside (ASX: WDS), CSL Limited (ASX: CSL), Flight Centre (ASX: FLT), Judo Capital (ASX: JDO), EBR Systems (ASX: EBR), Universal Store (ASX: UNI) and ARB Corporation (ASX: ARB).

Wisetech Global (ASX: WTC)

• Category leading supply chain software - WTC has fast become the software standard within the Freight Forwarding industry. Further development/integration of new capabilities should grow its addressable market. 
• AI an enabler, not a threat - AI should allow WTC to further leverage its strong market position, supporting long-term earnings growth above industry. 
• Stock looks too oversold relative to its growth potential - WTC enjoys strong domain expertise, industry specific moats, sound AI strategies and strong cash generation.

Price target: $83.60

Eagers Automotive (ASX: APE)

• Leveraging NEV leadership - APE’s distribution agreement with BYD positions it very well to capture surging NEV demand amid rising petrol prices.
• Offshore growth building - the CanadaOne acquisition appears to be progressing positively, with a meaningful runway of future consolidation opportunities ahead. 
• Domestic used business strengthening - EA123 remains a key medium/term driver, with improving profitability and clear intent to scale the network and broader ecosystem.

Price target: $31.80