Analyst Doubles Down on ASX Resources After Six-Week Selloff: The Call

Morgan Stanley has reaffirmed its overweight stance on ASX resources following a sharp 10.4% drawdown over six weeks, framing the recent weakness as a tactical buying opportunity rather than a structural break in the commodities cycle.

The investment bank’s sector team maintains its preference for materials and energy exposures over banks, housing-linked stocks and consumer discretionary names, citing a domestic economic slowdown that threatens earnings for domestically-focused companies. The call comes despite ASX Resources delivering a robust 43% gain over the past 12 months, outperforming the banking sector by approximately 39 percentage points.

The recent pullback has been driven by a confluence of headwinds including volatile energy prices, US dollar strength and spot commodity price swings. However, Morgan Stanley’s analysts view these factors as temporary dislocations in what remains a structurally supportive environment for select commodities.

Which sectors are favoured?

Within the resources complex, Morgan Stanley has established a clear preference hierarchy: copper sits at the top, followed by uranium, gold and thermal coal, while aluminium and iron ore occupy the least-favoured positions. This commodity-specific approach reflects the bank’s view that sector performance is increasingly diverging along fundamental supply-demand lines rather than moving in lockstep.

Copper emerges as the standout conviction call, with Morgan Stanley forecasting COMEX prices of US$6.85 per pound and London Metal Exchange prices of US$14,250 per tonne by the fourth quarter of 2026. The bullish thesis rests on tight mine supply stemming from years of underinvestment and production disruptions, combined with surging demand from artificial intelligence infrastructure. The bank’s analysis suggests data centres alone could account for roughly 30% of copper demand growth in 2026, as the AI buildout requires extensive electrical infrastructure and cooling systems.

Uranium represents the second pillar of Morgan Stanley’s resources strategy, with term contract prices recently hitting an all-time high of US$95.50 per pound. The bank projects a substantial 13.5 million pound deficit in 2026 and forecasts spot prices reaching US$95 per pound by late 2026. The uranium thesis centres on nuclear power’s expanding role in energy security and decarbonisation strategies, particularly as governments seek reliable baseload power to complement intermittent renewable generation.

Gold maintains a place in Morgan Stanley’s preferred list, though with more measured expectations than copper or uranium. The bank’s fourth-quarter 2026 forecast of US$4,450 per ounce reflects continued support from central bank purchasing, with models incorporating approximately 700 tonnes of official sector buying. However, the trajectory is expected to be slower than previous gold rallies, as exchange-traded fund demand remains subdued and much of the central bank buying narrative has already been absorbed by markets.

Iron ore occupies the opposite end of Morgan Stanley’s preference spectrum, with expectations that prices will drift toward the lower end of the US$90-110 per tonne range. The bank’s fourth-quarter 2026 forecast of US$92 per tonne reflects improving seaborne supply as new projects ramp up, particularly the Simandou development in Guinea, which is expected to add significant high-grade tonnage to global markets. Coupled with ongoing weakness in Chinese steel demand, the iron ore outlook appears considerably less compelling than the bank’s preferred commodities.

Other Considerations

The macroeconomic backdrop remains a critical variable in Morgan Stanley’s thesis. The bank’s economists expect the US Federal Reserve to hold interest rates steady through 2026 before implementing modest 25 basis point cuts in March and June 2027. This higher-for-longer rate environment represents the primary risk to the bullish commodities view, as elevated real yields can pressure commodity prices and risk appetite more broadly.

The strategic positioning reflects a broader rotation theme that Morgan Stanley has been advocating across Australian equities. Resources companies are expected to drive a disproportionate share of ASX 200 earnings growth through fiscal years 2026 and 2027, creating a fundamental justification for the sector’s premium valuation relative to historical norms. This earnings dynamic contrasts sharply with banks and consumer-facing businesses, where margin pressure and volume headwinds are expected to constrain profit growth.

For markets considering exposure to the resources thesis, the recent six-week correction has created what Morgan Stanley views as a more attractive entry point for quality names with leverage to copper, uranium and gold. The bank’s framework suggests investors should use weakness to rotate into companies with strong balance sheets, low-cost operations and exposure to the preferred commodities, while remaining cautious on pure-play iron ore producers and aluminium-focused assets.