Expert Highlights 2026 ASX Sectors to Target and Avoid

A new analysis by Canaccord Genuity and Wilsons Advisory has provided insights into the sectors of the ASX that investors should target and avoid in 2026. According to the report titled Market Outlook, the S&P/ASX 200 Index is grappling with potential risks from Reserve Bank of Australia (RBA) interest rate hikes. Coupled with elevated valuations, the index currently trades at a forward Price-to-Earnings (P/E) ratio of 18.2x, which is roughly one standard deviation above its five-year average.

2026 ASX Sectors to Target and Avoid

Sectors to Target

• Resources Sector:
  • The resources sector shows a positive trend after recent downturns, supported by rising commodity prices.
  • Expectations of an extended upgrade cycle in metal pricing may drive investments here.
  • Geopolitical risks remain, but favorable macroeconomic trends indicate moderate global growth.
  • Anticipated weakness in the US dollar relative to the Australian dollar can bolster demand for resources.
  • Various “future-facing” metals, especially those needed for energy transitions and technological advancements, are in demand.
• AI-Focused Companies:
  • The report highlights that artificial intelligence (AI) remains an early-cycle megatrend.
  • Firms implementing AI to enhance operational efficiency and their products are expected to excel.
  • Notable ASX players benefiting from this trend include Xero Ltd (ASX: XRO) and Technology One Ltd (ASX: TNE).

Sectors to Avoid

• Banking Sector:
  • Interest in bank stocks is projected to decline, leading to an underweight recommendation in this sector.
  • Commonwealth Bank’s dominance may diminish, with investors shifting focus.
  • Among the major banks, ANZ Group Holdings Ltd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) are preferred due to their robust capital positions and earnings potentials.

Conclusion

The findings present a mixed outlook for the ASX in 2026. While the resources sector and companies embracing AI are expected to thrive, caution is warranted in banking stocks. Investors are advised to carefully evaluate their portfolios, targeting opportunities that align with emerging market trends.