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If the market has recovered, shouldn't you be bargain hunting? · The Money Puzzle

• 0:09
  Speaker 1: Hello and welcome to The Australian's Money Puzzle Podcast. I'm
• 0:12
  Speaker 1: James Kirby, Wealth Editor at The Australian. Welcome aboard, everybody.
• 0:17
  Speaker 1: You know, when I asked this week's guest to come
• 0:19
  Speaker 1: on the show, I didn't know at the time that
• 0:21
  Speaker 1: we were going to have the worst day on the
• 0:23
  Speaker 1: stock market for four years in the same week, or
• 0:26
  Speaker 1: indeed that share markets would have moved, you know, from
• 0:30
  Speaker 1: pretty good to pretty rocky. in a matter of days.
• 0:36
  Speaker 1: So it's good timing. Danielle Ekoye has been on the
• 0:39
  Speaker 1: show before. She's an author of the book Shareplicity. She's
• 0:42
  Speaker 1: a writer. She's a television presenter. She's a seasoned investor
• 0:46
  Speaker 1: and a professional investor for many years around the world
• 0:50
  Speaker 1: in London and here. Always good to talk to her.
• 0:53
  Speaker 1: I'm delighted to have her on the show. How are you, Danielle?
• 0:56
  Speaker 2: Good, James. Thank you so much for having me back
• 0:59
  Speaker 2: on the programme.
• 1:00
  Speaker 1: Exquisite sense of timing. Straight into it. If you and I, right,
• 1:07
  Speaker 1: let's say you and I, Danielle, had a self-managed super
• 1:11
  Speaker 1: fund full of shares. And I said to you, oh,
• 1:16
  Speaker 1: my God, I got a scare on Monday. Japan fell
• 1:21
  Speaker 1: 10 percent. The US fell over days. The ASX, of course,
• 1:27
  Speaker 1: in classic fashion, fell with vigor for no apparent reason
• 1:32
  Speaker 1: apart from the US. So if I was saying to you, hey,
• 1:37
  Speaker 1: what should we do with our shares now? What would
• 1:40
  Speaker 1: your gut instinct be?
• 1:42
  Speaker 2: Well, I can only revisit a conversation I had with
• 1:45
  Speaker 2: a former very large client of mine who used to
• 1:47
  Speaker 2: invest in emerging markets. And basically, the approach was, A,
• 1:53
  Speaker 2: you do nothing until you establish really what was going on,
• 1:55
  Speaker 2: which became quite clear, James. It that there was what
• 2:00
  Speaker 2: is called the unwind of the Japanese yen carry trade.
• 2:04
  Speaker 2: So for the most simplistic purposes out there, it represented
• 2:09
  Speaker 2: a whole lot of leverage borrowing by hedge funds in
• 2:12
  Speaker 2: our financial system, where they borrow in Japanese yen and
• 2:16
  Speaker 2: then invest in overseas assets, particularly into the US. That's
• 2:21
  Speaker 2: where a lot of the money had gone. And because
• 2:23
  Speaker 2: of a number of events, including a higher than expected
• 2:27
  Speaker 2: hike in Japan, the Japanese interest rates of about 25
• 2:31
  Speaker 2: basis points, you started to see a big move between
• 2:35
  Speaker 2: the US dollar and the yen. And that meant this
• 2:38
  Speaker 2: lovely carry trade, which has basically been a funding source
• 2:41
  Speaker 2: for hedge funds to invest in overseas markets, came under pressure.
• 2:47
  Speaker 2: And the long and the short of the story, because
• 2:49
  Speaker 2: some people might find it a little bit confusing, is
• 2:52
  Speaker 2: just imagine you have one of these. And James, you
• 2:55
  Speaker 2: and I have spoken about these before. these liquidity drawdown events.
• 2:59
  Speaker 2: And it's basically when hedge funds get themselves into trouble
• 3:03
  Speaker 2: because they've taken on too much debt and something in
• 3:07
  Speaker 2: their position starts to work against them. So instead of
• 3:10
  Speaker 2: making lots of money, they start to generate lots of losses.
• 3:14
  Speaker 2: And the more that the assets that they've invested in fall,
• 3:18
  Speaker 2: the prices, the more that they have to sell to
• 3:21
  Speaker 2: cover at the other end. And basically, that huge fall
• 3:26
  Speaker 2: that we saw in the Nikkei and the Cosby, the
• 3:28
  Speaker 2: Korean market on Monday, that's not normal. That is just
• 3:32
  Speaker 2: not normal. That isn't just the US going, oh, we
• 3:35
  Speaker 2: might be growing more slowly or a recession might be coming, James.
• 3:39
  Speaker 2: That means something has not broken in the financial system,
• 3:44
  Speaker 2: but some of these big hedge funds with all that
• 3:48
  Speaker 2: debt are coming unstuck.
• 3:50
  Speaker 1: I won't say that I was cynical about about this
• 3:53
  Speaker 1: carry trade. But, you know, to me, correct me if
• 3:58
  Speaker 1: I'm wrong, you know, it's a technicality. I wake up
• 4:01
  Speaker 1: and I find that the Australian market has its worst
• 4:03
  Speaker 1: day in four years because of hedge funds in the
• 4:06
  Speaker 1: Japan carry trade. And I know a lot of people
• 4:08
  Speaker 1: have mentioned it as part of their invariably, you know, lengthy,
• 4:13
  Speaker 1: menulent explanation as to why the markets fell. But that
• 4:18
  Speaker 1: doesn't explain why the markets lost their nerve The quantity
• 4:23
  Speaker 1: of that action doesn't explain why traders lost their nerve
• 4:27
  Speaker 1: around the world, including here. I know what happened, and
• 4:32
  Speaker 1: I know it's in there among the explanations.
• 4:36
  Speaker 2: Why doesn't it?
• 4:38
  Speaker 1: Why?
• 4:39
  Speaker 2: Why? Because I think what people have completely underestimated, and
• 4:44
  Speaker 2: I think it's really clear when you compare the Australian
• 4:46
  Speaker 2: market to the U.S. market and what's being impacted in
• 4:50
  Speaker 2: the U.S., is that these hedge funds had been riding,
• 4:55
  Speaker 2: let's say, the Gen AI wave, the GLP-1 wave, which
• 4:59
  Speaker 2: we discussed at our last one. And those share prices
• 5:03
  Speaker 2: are being hit more. And we're actually seeing that being
• 5:05
  Speaker 2: reflected back into the Australian share market with the stocks
• 5:09
  Speaker 2: like Goodman Group, by way of example, which has exposure
• 5:12
  Speaker 2: to data centers getting hit. Now, you might be sort
• 5:15
  Speaker 2: of saying, like, what does little all Australia have to
• 5:17
  Speaker 2: do with the carry trade? Well, nothing. directly probably, but
• 5:22
  Speaker 2: to the extent that the financial system is so intertwined, James,
• 5:29
  Speaker 2: it can no longer be a case of when something
• 5:32
  Speaker 2: goes wrong in one part of the world, it has
• 5:34
  Speaker 2: no impact elsewhere. I'll give you an example. Long-term capital management,
• 5:39
  Speaker 2: and it's one I always use, and it came unstuck
• 5:42
  Speaker 2: in the Asian currency crisis, and that was the time
• 5:45
  Speaker 2: when I was broking emerging markets. And they were meant
• 5:49
  Speaker 2: to be the best mathematicians around with the best algorithms
• 5:53
  Speaker 2: and black box. They used to call it black box
• 5:55
  Speaker 2: at the time. And they hadn't anticipated that Russia would
• 6:00
  Speaker 2: default on its sovereign debt. Okay. When they did that,
• 6:04
  Speaker 2: the whole hedge fund basically blew up. So what started
• 6:07
  Speaker 2: as an Asian currency crisis where they were making money
• 6:10
  Speaker 2: and the Asian markets were falling suddenly became, oh my gosh,
• 6:14
  Speaker 2: this is a Wall Street problem. And you saw the
• 6:17
  Speaker 2: US market then responding in kind, and they had to
• 6:20
  Speaker 2: bail out LTCM because it became too big to fail. Now,
• 6:25
  Speaker 2: the events that you've seen with the carry trade, A,
• 6:28
  Speaker 2: I think through the passage of time, we'll find out
• 6:31
  Speaker 2: the carry trade has, in fact, injected so much money
• 6:37
  Speaker 2: into assets overseas that that we're probably only seeing the
• 6:41
  Speaker 2: tip of the iceberg in terms of the unwide potentially
• 6:44
  Speaker 2: in the trade. We don't know how much leverage these
• 6:47
  Speaker 2: hedge funds have and how long it's going to take
• 6:50
  Speaker 2: them to rebalance. All we do know is that the
• 6:54
  Speaker 2: Bank of Japan came out in response and said, oh, well,
• 6:57
  Speaker 2: we won't be raising interest rates anytime soon.
• 7:00
  Speaker 1: That's right. So hang on. So this carry trade is
• 7:03
  Speaker 1: not as disturbed as we thought?
• 7:05
  Speaker 2: No, on the contrary, it is that disturbed because the
• 7:08
  Speaker 2: Bank of Japan came out and said, with like a
• 7:12
  Speaker 2: Fed put, when markets fall, they've come out and said,
• 7:16
  Speaker 2: and I suspect the US, the Fed was on the
• 7:18
  Speaker 2: phone to them saying, whoa, guys, hello, we can't afford
• 7:22
  Speaker 2: to have at this point in the cycle, one of
• 7:25
  Speaker 2: these drawdown events where we go back to what happened
• 7:29
  Speaker 2: in the lockdowns.
• 7:32
  Speaker 1: What I meant was that If I'm a retail investor
• 7:35
  Speaker 1: listening to the show and I hear this, I say, okay,
• 7:38
  Speaker 1: all right. Okay. You know. Okay. So all these sort
• 7:42
  Speaker 1: of desk jockeys around the world are doing this and that.
• 7:44
  Speaker 1: What about my shares? And what I'm really driving at
• 7:46
  Speaker 1: is I don't want to simplify the long-term capital management event.
• 7:52
  Speaker 1: But in a way, right, they were technical events.
• 7:56
  Speaker 2: Correct. Totally. Totally.
• 7:59
  Speaker 1: They don't fully explain everything. why the market has dropped
• 8:05
  Speaker 1: and what I'm asking you I suppose what I'm driving
• 8:08
  Speaker 1: at is it wasn't much of a drop in the
• 8:11
  Speaker 1: end it has recovered a fair bit so far it's
• 8:14
  Speaker 1: not a crash it's not even a correction the fall
• 8:16
  Speaker 1: was 7.5% at its peak on the US on the
• 8:19
  Speaker 1: S & P and 10% is a correction but I
• 8:22
  Speaker 1: wonder Danielle if we were running our shares in the
• 8:25
  Speaker 1: SMSF and you were telling me all about this stuff
• 8:28
  Speaker 1: I would simply say I think I worry sentimental approach,
• 8:34
  Speaker 1: knowing history, watching markets all the way back to 1987,
• 8:37
  Speaker 1: I feel it's a dress rehearsal for what this market
• 8:43
  Speaker 1: is due.
• 8:44
  Speaker 2: So you're saying you think markets need to crash. Is
• 8:47
  Speaker 2: that what you're saying?
• 8:48
  Speaker 1: I'm saying that, look, one of the things I sort
• 8:50
  Speaker 1: of obsessed with all week of all the mountains of
• 8:53
  Speaker 1: material I've read and listened to is Mike Wilson, the
• 8:55
  Speaker 1: strategy king, right, at Morgan Stanley, the kings of the
• 9:00
  Speaker 1: global market. And by the way, in terms of what
• 9:02
  Speaker 1: wealthy people do in Australia, they absolutely dominate the top
• 9:06
  Speaker 1: end of financial advice market here. I mean, I think
• 9:09
  Speaker 1: they have something like a quarter of all entries on
• 9:11
  Speaker 1: our top advisors list. And their chief strategist said a
• 9:15
  Speaker 1: very simple thing. He said, long-term average on the US,
• 9:18
  Speaker 1: 16 times PE. Current PE, 21. He thinks it should
• 9:22
  Speaker 1: drop to about 19 to be right. Either the earnings
• 9:25
  Speaker 1: have to fly up For all those stocks in the US,
• 9:28
  Speaker 1: they have to come down. And this market is due
• 9:31
  Speaker 1: a reversal because of the AI excitement, which percolates right
• 9:37
  Speaker 1: through the market, even to our.
• 9:38
  Speaker 2: Maybe.
• 9:39
  Speaker 1: What do you think of what I'm saying?
• 9:41
  Speaker 2: Well, it's funny because you've gone from like, it's a
• 9:44
  Speaker 2: storm in a teacup about the yen trade, but... The
• 9:50
  Speaker 2: markets really need to fall over in a heap. And
• 9:52
  Speaker 2: of course, there is that narrative out there. It's probably
• 9:55
  Speaker 2: been the most distrusted rally in share markets post the.
• 9:59
  Speaker 1: Low I really like that phrase. Well, it is.
• 10:02
  Speaker 2: People just go, this shouldn't be happening. And yet you go, U.S.
• 10:08
  Speaker 2: earnings are actually better than expected this quarter. They're coming
• 10:12
  Speaker 2: out better than expected. I think that whole gloom we're
• 10:17
  Speaker 2: going to have mean revert back on valuations. I personally
• 10:24
  Speaker 2: don't subscribe to it. I go back to the financial
• 10:27
  Speaker 2: system globally has fundamentally shifted over the last 30 years.
• 10:33
  Speaker 2: Of course, there are investors, and you have to be
• 10:36
  Speaker 2: very careful to differentiate between somebody that has $ 10 billion,
• 10:40
  Speaker 2: $ 100 billion, or even $ 100 million. versus probably most of
• 10:46
  Speaker 2: your listeners, because those people have a completely different take
• 10:50
  Speaker 2: on asset allocation, okay, versus most of us who have
• 10:55
  Speaker 2: money in the markets and a superannuation in the markets.
• 10:59
  Speaker 2: And super funds have been the biggest buyers of banks
• 11:04
  Speaker 2: over this year, which I bet would surprise you, because
• 11:07
  Speaker 2: every broker has a sell rating on them. So I think.
• 11:12
  Speaker 1: Sorry, Danielle, are you talking about the Australian banks?
• 11:15
  Speaker 2: Yeah, the Australian banks. Yeah, yeah.
• 11:17
  Speaker 1: So this is why CommBank is at $ 130, et cetera.
• 11:21
  Speaker 2: Correct. And nobody expected that.
• 11:23
  Speaker 3: I think this whole big doom, gloom, interest rates are
• 11:28
  Speaker 3: still going to go up in Australia.
• 11:30
  Speaker 2: I'm not so sure about that. When you look at
• 11:33
  Speaker 2: the reset in the markets, possibly, yes, Australian shares had
• 11:37
  Speaker 2: moved too far. Yes, US shares had moved too far.
• 11:42
  Speaker 2: Is Gen A, I? a flash in the pan? Absolutely not.
• 11:48
  Speaker 2: So differentiate between what was possibly exuberance coming into certain shares.
• 11:55
  Speaker 2: But I just think, be very careful about saying markets
• 11:58
  Speaker 2: are going to crash. Lots of people say markets are
• 12:00
  Speaker 2: going to crash, but I will put it out there
• 12:06
  Speaker 2: that there is no government and no central bank that's
• 12:09
  Speaker 2: going to let that happen.
• 12:10
  Speaker 1: Okay. By the way, I would never say markets are
• 12:14
  Speaker 1: going to crash and I would never say the word panic.
• 12:16
  Speaker 1: What I would say is that pullback wasn't as big
• 12:19
  Speaker 1: as I thought it was going to be. Simple as that.
• 12:21
  Speaker 2: Because it hasn't finished necessarily.
• 12:23
  Speaker 1: It hasn't finished necessarily.
• 12:24
  Speaker 3: Because the Bank of Japan has backstopped everything. That's what
• 12:28
  Speaker 3: I was trying to explain. The Bank of Japan has
• 12:31
  Speaker 3: kind of backstopped it. Now, again, I don't want people
• 12:35
  Speaker 3: to be scared because ultimately at the end of the day,
• 12:38
  Speaker 3: It's like it's going to, once this liquidity drawdown, once
• 12:42
  Speaker 3: the liquidity readjusts, right, it will be about going back
• 12:46
  Speaker 3: to earnings. And if earnings are growing, it's a very
• 12:50
  Speaker 3: simple story. Share prices go up over time.
• 12:53
  Speaker 2: End of story.
• 12:54
  Speaker 1: So let's take that line of inquiry. If that's the case,
• 12:58
  Speaker 1: and let's assume that's the case, then we have a
• 13:03
  Speaker 1: market that is a bit cheaper this week than last week.
• 13:06
  Speaker 1: And is it too early to go bargain hunting?
• 13:12
  Speaker 2: Well, it's reporting season, James. So I think in the
• 13:17
  Speaker 2: context of that, it is probably more prudent to, rather
• 13:22
  Speaker 2: than play the casino game of red or black, The
• 13:27
  Speaker 2: investors should wait till the results come out. I'll give
• 13:30
  Speaker 2: you a couple of examples. Mervac was off about 12%
• 13:34
  Speaker 2: today because their 2025 guidance is lower than expected. Then
• 13:39
  Speaker 2: there is another company, Ordinate, a favorite. They had to
• 13:42
  Speaker 2: reset their earnings guidance down and it fell 35%. But
• 13:47
  Speaker 2: now a whole lot of brokers have come up and
• 13:49
  Speaker 2: upgraded today, or Macquarie, which had downgraded before, have upgraded
• 13:53
  Speaker 2: and said, look, now it's offering value. So I guess
• 13:57
  Speaker 2: whilst not giving advice, I would say to listeners, wait
• 14:02
  Speaker 2: till the company reports. There's going to be ongoing volatility
• 14:08
  Speaker 2: and big share price moves. So rather than going to
• 14:12
  Speaker 2: the casino and second guessing saying, is ComBank share price
• 14:16
  Speaker 2: going to go up and down, will Telstra's go up
• 14:18
  Speaker 2: and down, whatever. Just, I think, wait and absorb because
• 14:23
  Speaker 2: everybody's going to have a different position in terms of
• 14:26
  Speaker 2: the shares they own, what time period, etc. But I
• 14:29
  Speaker 2: think you can expect volatility in this earnings season.
• 14:35
  Speaker 1: I want to ask you one thing, which is just
• 14:37
  Speaker 1: about how our market is just a little bit different
• 14:40
  Speaker 1: than the US in earnings. I'm going to say ComBank,
• 14:42
  Speaker 1: you mentioned there, biggest stock in the market, biggest bank
• 14:46
  Speaker 1: in the market. They're due to report... on the 14th,
• 14:49
  Speaker 1: which is next Wednesday. And they are expected, market consensus
• 14:54
  Speaker 1: is that their profit actually will drop a little bit,
• 14:57
  Speaker 1: very roughly from 10 point something to nine point something billion.
• 15:01
  Speaker 1: But at the same time, their dividend is going to
• 15:04
  Speaker 1: crawl higher by five cents. What I'm driving at here
• 15:07
  Speaker 1: is in our market, the value proposal to the investor
• 15:12
  Speaker 1: includes dividends at a 4% dividend yield in the US,
• 15:17
  Speaker 1: the dividend is nothing remotely near that. So the promise
• 15:21
  Speaker 1: is price increase. So what I want to ask you is,
• 15:23
  Speaker 1: when you look at the results, should the dividend payout
• 15:30
  Speaker 1: or payment be a more important criteria on the ASX
• 15:36
  Speaker 1: than it would be on global shares?
• 15:40
  Speaker 2: Well, it really depends on the share, James, because obviously
• 15:43
  Speaker 2: it's important for become important for the big miners and
• 15:48
  Speaker 2: it is important for the banks. But there's a whole
• 15:51
  Speaker 2: lot of shares that don't pay much dividend here in Australia.
• 15:54
  Speaker 1: For the ones that are the big, like literally dividend influencers,
• 15:57
  Speaker 1: like companies?
• 15:58
  Speaker 2: Well, yeah. Yeah, of course. Of course. In the US,
• 16:02
  Speaker 2: it's buybacks. Okay, because they changed the legislation years ago.
• 16:07
  Speaker 2: I think it was Bill Clinton that made buybacks more
• 16:09
  Speaker 2: attractive than dividends. So yeah, of course, dividend is hugely important.
• 16:15
  Speaker 2: Although I wouldn't be surprised unless they really come out
• 16:19
  Speaker 2: on a big miss on the dividends or a big
• 16:21
  Speaker 2: better than expected on the dividend. I wouldn't expect that
• 16:24
  Speaker 2: you're going to get much movement for some of those
• 16:26
  Speaker 2: more well-known companies. Actually, I haven't had a look at
• 16:29
  Speaker 2: Transurban today because I think their dividend might be slightly
• 16:33
  Speaker 2: better than expected. But generally speaking, Rio came out with
• 16:38
  Speaker 2: a lower than expected dividend the other day, and the
• 16:40
  Speaker 2: share price didn't really respond. So it has to be
• 16:44
  Speaker 2: quite a big change for them.
• 16:48
  Speaker 1: Dramatic. Okay. Actually, while we're talking about dividend, and before
• 16:51
  Speaker 1: we go to the break, I want to throw one
• 16:52
  Speaker 1: other thing at you, which is I was surprised, even
• 16:56
  Speaker 1: I think at the start of the show there, I mentioned, oh,
• 16:59
  Speaker 1: part of the distinct value proposal of Australian shares, as
• 17:03
  Speaker 1: opposed to offshore shares, is the dividend rate, the dividend yield.
• 17:10
  Speaker 1: But it's been dropping. And the forecast dividend yield for
• 17:14
  Speaker 1: the market is under 4.
• 17:15
  Speaker 3: It's 3.8.
• 17:15
  Speaker 1: We were always told it was 4.5. So to that extent,
• 17:20
  Speaker 1: the dividend side of the deal seems to be fading
• 17:23
  Speaker 1: while the price action is all right, but it's never
• 17:27
  Speaker 1: as good as the U.S. What do you think of that?
• 17:32
  Speaker 2: I'm not surprised. All of these institutions that have paid
• 17:35
  Speaker 2: out too high a payout ratio, too much in dividends
• 17:39
  Speaker 2: and haven't invested in the future have to invest now.
• 17:42
  Speaker 2: It's a huge problem.
• 17:44
  Speaker 1: They're catching up with them.
• 17:47
  Speaker 2: Yeah, totally. Totally. Banks are a classic case in point. Again,
• 17:52
  Speaker 2: it goes back to even if you're looking at things
• 17:55
  Speaker 2: like cybersecurity and all the attacks that are going on there.
• 17:58
  Speaker 2: I mean, they have to invest for the future. That's
• 18:01
  Speaker 2: the bottom line. I think investors have feasted, gorged themselves
• 18:07
  Speaker 2: on amazing dividends in Australia, and it's typical of a
• 18:10
  Speaker 2: cyclical mature market. The UK is the same, I think
• 18:14
  Speaker 2: you'll find, James. That has quite a high yield as
• 18:17
  Speaker 2: well from memory. For example, tobacco companies. I was just
• 18:22
  Speaker 2: recently in London and met with a friend of mine who's–
• 18:24
  Speaker 2: I know tobacco companies. I know everybody's cup of tea,
• 18:27
  Speaker 2: so I'm not suggesting you run out and buy them.
• 18:30
  Speaker 1: I know. There have been great investments for a long time.
• 18:33
  Speaker 1: I know this.
• 18:35
  Speaker 4: The dividend yield on BAT is over 9% British and
• 18:41
  Speaker 4: American tobacco because my friend is a top-rated tobacco analyst
• 18:46
  Speaker 4: in the world.
• 18:47
  Speaker 3: And I said, how much capital erosion have you had?
• 18:50
  Speaker 3: And he said, oh, yes, quite a bit of capital erosion.
• 18:53
  Speaker 2: And I go, and then he explains why. But I
• 18:55
  Speaker 2: guess what I'm saying is that some of those more
• 18:59
  Speaker 2: mature industries, et cetera, have much higher yields. But in
• 19:04
  Speaker 2: the case of Australia, if we look at our companies
• 19:07
  Speaker 2: that respond or behave in a fashion that is more
• 19:10
  Speaker 2: attuned to possibly what investors look for in the US,
• 19:13
  Speaker 2: so the car sales, REA, which is reporting on Friday,
• 19:17
  Speaker 2: the likes of WiseTech Global, Xero. Now, these companies are
• 19:22
  Speaker 2: investing for the future, always upgrading, and they don't pay
• 19:26
  Speaker 2: high dividends, and yet their performance, capital appreciation has been spectacular.
• 19:30
  Speaker 1: We won't go down the side alley of the reality
• 19:35
  Speaker 1: that the frank dividend regime has a lot to answer
• 19:41
  Speaker 1: for here. It really does, because it steamrolled and basically
• 19:46
  Speaker 1: shunted the whole market towards the dividends becoming perhaps overly important.
• 19:52
  Speaker 1: A story for another day. We'll be back in a moment, folks.
• 19:54
  Speaker 1: We'll take a short break. Hello and welcome back to
• 20:03
  Speaker 1: the Australian's Money Puzzle podcast. I'm talking to Danielle Okoye,
• 20:07
  Speaker 1: author of the Shareplicity book, which was a bestseller on
• 20:10
  Speaker 1: shares and terrific book if you are getting to know
• 20:13
  Speaker 1: the share market and want an introduction to it. She
• 20:16
  Speaker 1: is also an analyst, investor, professional investor and writer. I
• 20:21
  Speaker 1: wanted to ask you, Danielle, this segment, folks, is going
• 20:24
  Speaker 1: to be choppy, right? Because I'm going to throw different
• 20:26
  Speaker 1: things at Danielle and she's sort of a person that
• 20:28
  Speaker 1: you can do this and she's going to be able
• 20:30
  Speaker 1: to answer most of the questions. You know, this hunt
• 20:33
  Speaker 1: for alternative assets is And this, which I'm terribly skeptical about,
• 20:38
  Speaker 1: not that I'm skeptical about it. I'm terribly skeptical about
• 20:41
  Speaker 1: the business of listed securities on the Australian market where
• 20:49
  Speaker 1: mom and dad are told, here's your way into private credit.
• 20:53
  Speaker 1: Here's your way into private equity in the very, to me,
• 20:58
  Speaker 1: extremely unlikely vehicle of a listed share. Did you have
• 21:03
  Speaker 1: a look at, see how those performed in the shock
• 21:08
  Speaker 1: drop earlier in the week? And what do you think
• 21:12
  Speaker 1: of that fashion of pulling retail investors into, I mean,
• 21:18
  Speaker 1: these funds are just popping out by the day. Everyone's
• 21:20
  Speaker 1: rushing in and launching these listed funds where they say
• 21:24
  Speaker 1: to people, hey, folks, you know, you can't get at
• 21:27
  Speaker 1: private credit and private equity because you're just Joe Average.
• 21:30
  Speaker 1: But if you want to catch up with the future
• 21:32
  Speaker 1: found in Australian super, buy this listed share. What do
• 21:34
  Speaker 1: you think of that whole thing?
• 21:37
  Speaker 2: Well, I'm going to refer to another guest of yours,
• 21:40
  Speaker 2: Will Hamilton, because Will and I used to work together.
• 21:43
  Speaker 2: And we have a little bit of a joke about this.
• 21:46
  Speaker 2: And it's not to dismiss anyone that has put money
• 21:49
  Speaker 2: in these forms of asset classes, but we are very
• 21:52
  Speaker 2: cynical because we've come from that side of the industry.
• 21:55
  Speaker 2: We know that the institutions will give the retail public
• 22:01
  Speaker 2: the funds that they think they will like and they
• 22:05
  Speaker 2: can sell. So straight off the bat, I'm very concerned, cynical,
• 22:11
  Speaker 2: that whilst there will be good vehicles, there will also
• 22:16
  Speaker 2: be vehicles that could tell a very sorry story down
• 22:20
  Speaker 2: the track. Now, private credit has been a huge growth market,
• 22:24
  Speaker 2: largely to do with banking regulations. So the banks have
• 22:28
  Speaker 2: shifted out of funding in this area and private institutions
• 22:32
  Speaker 2: have moved into it.
• 22:33
  Speaker 3: In my former job at Ausbis, I was interviewing a
• 22:37
  Speaker 3: lot of private credit people.
• 22:38
  Speaker 2: It is growing rapidly. But when you think about it,
• 22:43
  Speaker 2: not all debt, so you buy in credit, is created equally, James.
• 22:50
  Speaker 2: And if we are going into an economic slowdown, albeit
• 22:54
  Speaker 2: everyone's debating the extent of the slowdown, one has to
• 22:57
  Speaker 2: question the quality of the credit that people are investing in. Intuitively,
• 23:03
  Speaker 2: if you're getting a 10% plus yield on debt versus,
• 23:09
  Speaker 2: let's say, I bought some ANZ corporate bonds today, which
• 23:13
  Speaker 2: are almost yielding about 5.9%, versus getting 10%, you have
• 23:18
  Speaker 2: to ask, how much risk am I taking for that
• 23:21
  Speaker 2: almost additional 5% per annum? And personally, For smaller investors,
• 23:30
  Speaker 2: it sounds attractive. I know a lot of older investors,
• 23:33
  Speaker 2: I think, have been saying, we'll sell our shares, we'll
• 23:36
  Speaker 2: go into private credit because we just want the income.
• 23:40
  Speaker 2: But like all new fads, I think there's going to
• 23:43
  Speaker 2: be winners and there's going to be losers. So you
• 23:45
  Speaker 2: have to be very careful. You just can't assume what
• 23:49
  Speaker 2: the underlying asset is and if it's going to be
• 23:52
  Speaker 2: okay and what happens if that company goes bust. Now, obviously,
• 23:58
  Speaker 2: There's a lot of property credit out there and property
• 24:01
  Speaker 2: is in an immense world of pain at the moment.
• 24:04
  Speaker 2: So I think investors have to be incredibly diligent and
• 24:08
  Speaker 2: careful about what they're buying. When it comes to private equity,
• 24:13
  Speaker 2: investors have to understand that the big boys, they, again,
• 24:17
  Speaker 2: if you go back to the big investor with $ 100
• 24:19
  Speaker 2: million or whatever they have, they don't mind blowing up
• 24:23
  Speaker 2: $ 10 million. That's why they'll put it into Bitcoin or
• 24:25
  Speaker 2: they'll put it into something else. Do you know what
• 24:29
  Speaker 2: I mean? It's petty cash. Yeah, it's petty cash. So
• 24:32
  Speaker 2: it comes down to asset allocation. If you have a
• 24:36
  Speaker 2: good fund manager that is asset allocating across a huge
• 24:40
  Speaker 2: spectrum of new companies in private equity, one maybe out
• 24:46
  Speaker 2: of 100 will do really well. We hear about the canvas.
• 24:51
  Speaker 2: We don't hear about all the ones that end up
• 24:55
  Speaker 2: in the toilets. That's the problem.
• 24:57
  Speaker 1: They all talk about the winners. This is like horse racing.
• 25:01
  Speaker 1: I had a winner in the 230 at whatever Randwick. Yeah,
• 25:04
  Speaker 1: but what about the dozens of times you didn't? Hey,
• 25:08
  Speaker 1: just one quick thing. It just struck me there. It
• 25:11
  Speaker 1: didn't dent to your highly sophisticated and experienced investor mind
• 25:17
  Speaker 1: when you bought, and I don't want to plug any
• 25:19
  Speaker 1: particular bank, but when you bought a bank security that
• 25:24
  Speaker 1: you just mentioned, it didn't dent to your mind that,
• 25:26
  Speaker 1: These were the guys that are financing the private credit
• 25:30
  Speaker 1: people anyway, the funds.
• 25:32
  Speaker 2: Yeah, that's true, actually. And obviously, yes, it was more,
• 25:35
  Speaker 2: I obviously have missed something in that. It was more
• 25:37
  Speaker 2: a switch out of a floating rate note into a
• 25:40
  Speaker 2: fixed rate. So I'm taking.
• 25:41
  Speaker 1: But the big banks, the big investment banks, they're behind
• 25:44
  Speaker 1: all that anyway, aren't they?
• 25:45
  Speaker 2: Well, I'm not up to date on that one, but
• 25:48
  Speaker 2: it's their financing the credit market, which I guess somebody
• 25:51
  Speaker 2: has to. Yeah, because they've taken it off their balance sheets.
• 25:56
  Speaker 2: Same in the US.
• 25:57
  Speaker 1: They've taken it off their balance sheets. That is the lending.
• 26:01
  Speaker 1: And then these funds come along. But the funds are
• 26:05
  Speaker 1: financed by banks. Anyway, we'll put that out there just
• 26:07
  Speaker 1: for the moment.
• 26:08
  Speaker 3: All right.
• 26:08
  Speaker 1: OK. We'll take a short break. We've got some really
• 26:10
  Speaker 1: good questions from Matthew and Joe and Matt and someone
• 26:15
  Speaker 1: who likes to call themselves the average punter. Back in
• 26:17
  Speaker 1: a moment. Hello and welcome back to the Australian's Money Puzzle.
• 26:26
  Speaker 1: Maybe you and I could read them alternately if you'd
• 26:29
  Speaker 1: like to do that. Yep.
• 26:32
  Speaker 2: Okay. So Matthew has asked, if the market always goes
• 26:34
  Speaker 2: up in the long term, why wouldn't a young investor
• 26:37
  Speaker 2: always buy a geared ETF? I don't understand the long-term downside. Ultimately,
• 26:43
  Speaker 2: one is just magnifying the long-term expected market return. If
• 26:47
  Speaker 2: the expected return wasn't positive over the long term, we
• 26:50
  Speaker 2: wouldn't buy it in the first place. Great question.
• 26:52
  Speaker 1: I had a.
• 26:53
  Speaker 2: Conversation with my son, who at one point watched a
• 26:56
  Speaker 2: triple-geared NASDAQ fund.
• 26:58
  Speaker 1: Triple-geared?
• 27:00
  Speaker 2: I think so, yeah. I stand to be corrected. It
• 27:04
  Speaker 2: might be only double-geared. Look, at the end of the day,
• 27:07
  Speaker 2: in theory, it sounds great. But when markets fall by 20%
• 27:10
  Speaker 2: and your geared ETF has gone down by double or
• 27:14
  Speaker 2: triple the amount, you mightn't feel as ballsy. So it
• 27:20
  Speaker 2: depends on your risk tolerance, Matthew. Like everything, people forget, James,
• 27:26
  Speaker 2: that you can have long periods of underperformance in share
• 27:29
  Speaker 2: markets from 1968 to the early 80s, and I'm sure
• 27:33
  Speaker 2: you've discussed reasons why in previous podcasts.
• 27:37
  Speaker 1: It's come up, of course, yeah.
• 27:39
  Speaker 2: But I think it depends how... your risk tolerance works.
• 27:45
  Speaker 2: Me personally, women tend to be more conservative. I would
• 27:48
  Speaker 2: never consider a geared ETF or a geared ETF into
• 27:52
  Speaker 2: a stock like Nvidia. Yes, you can make lots of
• 27:55
  Speaker 2: money in the short term, but equally, you could watch
• 27:58
  Speaker 2: your capital erode rather quickly. Long-term wealth creation is done,
• 28:04
  Speaker 2: I think, more patiently.
• 28:05
  Speaker 1: Okay. Matthew, this is never advice, by the way, of course.
• 28:08
  Speaker 1: It's always information. But one thing I want to ask you, theoretically,
• 28:11
  Speaker 1: I suppose, Would you gear at all? Would you borrow
• 28:13
  Speaker 1: to invest on the markets? Never.
• 28:16
  Speaker 4: No, I see.
• 28:17
  Speaker 3: Okay.
• 28:17
  Speaker 1: All right. Okay. Then your answer was very much in
• 28:20
  Speaker 1: keeping with your broader worldview. All right. The Average Punter says,
• 28:25
  Speaker 1: I always listen to your podcast when picking up my
• 28:27
  Speaker 1: daughter from school. Actually, you know what we should do?
• 28:31
  Speaker 1: We should encourage people to tell us what they do
• 28:34
  Speaker 1: when they're listening to the podcast. It just struck me,
• 28:36
  Speaker 1: you know. I hear all sorts of things. We had a...
• 28:39
  Speaker 1: We had a listener who used to tell us that
• 28:42
  Speaker 1: they listened to us blowing the leaves, doing the garden, cycling,
• 28:46
  Speaker 1: all sorts of things. I wonder what's the oddest one.
• 28:49
  Speaker 1: They have to be genuine, of course. Let us know. Okay. Recently,
• 28:54
  Speaker 1: says the average printer, I heard Marcus Padley, who's someone
• 28:56
  Speaker 1: I must have on the show someday, of Marcus today saying,
• 29:00
  Speaker 1: if the overnight iron ore prices are up, then the
• 29:03
  Speaker 1: share prices of iron ore prices like Fortescue go up.
• 29:07
  Speaker 1: when the ASX opens for trading. And if they're down,
• 29:10
  Speaker 1: vice versa. Is it true? And how would I check
• 29:12
  Speaker 1: iron ore prices before the ASX opens for trading? Okay, well,
• 29:17
  Speaker 1: the ASX opens at 10 o'clock for trading. These days,
• 29:21
  Speaker 1: you can get this stuff pretty easily. It's like the
• 29:25
  Speaker 1: London Metals Exchange would have live prices. They're nine hours behind, etc.
• 29:30
  Speaker 2: We have it on the FN Arena website, James. The
• 29:34
  Speaker 2: iron ore price can be a little bit tricky to
• 29:36
  Speaker 2: get hold of. It's not traded directly out of London.
• 29:40
  Speaker 1: Why is it tricky to get a hold of? So
• 29:43
  Speaker 1: what's the key price market for iron ore?
• 29:46
  Speaker 2: I think it's traded in Singapore. That's the main one.
• 29:50
  Speaker 2: And they have different futures.
• 29:52
  Speaker 1: Yeah.
• 29:52
  Speaker 2: And there's also the Chinese exchange and they're usually traded
• 29:56
  Speaker 2: in futures prices. But FNArena.com has an update, which you
• 30:01
  Speaker 2: can see on the front of the website, updated all
• 30:04
  Speaker 2: the commodity prices every morning by about 8.15. There you are, AveragePunter.
• 30:11
  Speaker 2: All right.
• 30:11
  Speaker 1: Do you want to read the question from Joe? And
• 30:15
  Speaker 1: just before you do, AFIC folks, which is the subject
• 30:18
  Speaker 1: of this question, is the Australian Foundation Investment Company. It's
• 30:21
  Speaker 1: a listed investment fund. It's the most famous of them all.
• 30:24
  Speaker 1: I think it's the biggest of them all too. Okay.
• 30:26
  Speaker 1: Would you like to read that one, Danielle? Yes.
• 30:29
  Speaker 2: So Joe is asking that he's invested in AFIC over
• 30:32
  Speaker 2: the last few years and he can't understand at the
• 30:35
  Speaker 2: moment why the net assets are higher than the share price.
• 30:38
  Speaker 2: I can understand where this happens for a listed investment
• 30:42
  Speaker 2: company based on properties where the underlying valuations may not
• 30:46
  Speaker 2: align to the LIC valuations. Interesting one, James. I've had
• 30:50
  Speaker 2: a wee peek at the asset valuation and the latest
• 30:56
  Speaker 2: one that they've provided. It was really interesting, James, because
• 31:00
  Speaker 2: the pre-tax valuation versus the post-tax valuation compared to the
• 31:05
  Speaker 2: share price presents a totally different picture. So I didn't
• 31:10
  Speaker 2: come away with a very clear response to this one.
• 31:13
  Speaker 2: And I'd be interested in your view because pre-tax, the
• 31:17
  Speaker 2: share price is actually trading lower than the asset valuation. Post-tax,
• 31:22
  Speaker 2: it's higher.
• 31:23
  Speaker 1: Oh, yeah.
• 31:25
  Speaker 2: Which is interesting, isn't it? Because.
• 31:28
  Speaker 1: Has it got stored frank dividends?
• 31:31
  Speaker 2: Yeah, they do. They've got a lot of them. Yeah,
• 31:35
  Speaker 2: I think so. And all I would say is that
• 31:38
  Speaker 2: typically you're best to buy when the share price is
• 31:41
  Speaker 2: trading at a discount. It should have done quite well
• 31:44
  Speaker 2: because its largest holding is actually Commonwealth Bank. But they
• 31:48
  Speaker 2: do tend to move depending on what the shareholdings are. Although,
• 31:52
  Speaker 2: I don't know what you've heard, James, or your view,
• 31:55
  Speaker 2: but I think some of these listed investment companies are
• 31:59
  Speaker 2: not necessarily the preferred vehicle for the young. They tend
• 32:04
  Speaker 2: to buy ETFs. And I'm wondering whether the flow of
• 32:08
  Speaker 2: funds has impacted on some of these discounts, et cetera,
• 32:13
  Speaker 2: to the share prices.
• 32:14
  Speaker 1: Listed investment companies, I won't say invariably, but I think
• 32:17
  Speaker 1: you'll probably find actually the majority numerically trade below their
• 32:21
  Speaker 1: net asset value or tangible asset value. And the textbooks
• 32:26
  Speaker 1: will tell you, buy them when they're trading at a
• 32:29
  Speaker 1: discount to them. The thing is that they never narrow
• 32:31
  Speaker 1: the discount. Most of them never catch up. Some of
• 32:34
  Speaker 1: the good ones do, the better ones, and AFIC would
• 32:37
  Speaker 1: be one of them. So that's point one. And point
• 32:40
  Speaker 1: two is, as Danielle is saying, the thing about ETFs
• 32:45
  Speaker 1: is that, especially now with active ETFs, where they can
• 32:48
  Speaker 1: really sort of get very close to an approximate of
• 32:52
  Speaker 1: a conventional ASX top 200, listed investment company, their fees
• 32:59
  Speaker 1: can be lower and they can go lower even still.
• 33:02
  Speaker 1: So that's going on there. But for what it's worth,
• 33:05
  Speaker 1: in many ways, it's always the case with even really
• 33:09
  Speaker 1: good licks that they trade below the net tangible value
• 33:14
  Speaker 1: of all the shares in them, which is kind of ironic.
• 33:16
  Speaker 1: It shouldn't be the case, but it invariably is. I
• 33:19
  Speaker 1: might be corrected. I'll be corrected by that. The ones
• 33:21
  Speaker 1: that are trading at a premium will tell me very quickly.
• 33:24
  Speaker 1: But if you have a look across the board, that's
• 33:26
  Speaker 1: often the case. All right, Matt. Finally, Matt, last question.
• 33:32
  Speaker 1: Like many others, I have shares in big tech in
• 33:36
  Speaker 1: the U.S. I don't want to sell, but I want
• 33:39
  Speaker 1: to protect against the falling U.S. dollar. What can I
• 33:42
  Speaker 1: do as a mom slash dad investor? You're probably a
• 33:48
  Speaker 1: dad investor, Matt. Look, a couple of things. First of all,
• 33:53
  Speaker 1: it's funny, we had this conversation the other day. Over
• 33:54
  Speaker 1: a very long period of time, the hedging doesn't really
• 33:56
  Speaker 1: make an awful lot of difference. That's the first thing.
• 34:00
  Speaker 1: Second thing is, any sort of hedging whatsoever, nothing's free.
• 34:05
  Speaker 1: If you get hedging, you pay for it.
• 34:08
  Speaker 2: I wouldn't. I wouldn't personally. It's not advice, but mass.
• 34:12
  Speaker 2: I talk about Greek, enough Greek investing overseas with, you know,
• 34:16
  Speaker 2: even in big tech. It's everybody calls the demise of
• 34:20
  Speaker 2: the US dollar, but I don't think we're going to
• 34:23
  Speaker 2: see the demise of the US dollar in our lifetime, James.
• 34:26
  Speaker 2: Everybody calls the Aussie dollar at 80 cents for years,
• 34:30
  Speaker 2: and we haven't seen 80 cents in ages.
• 34:33
  Speaker 1: You don't think even Trump can undo it?
• 34:37
  Speaker 2: Oh, I think if Trump has a go at trying
• 34:39
  Speaker 2: to do some of the stuff that's in Project 2025,
• 34:42
  Speaker 2: you'll see the bond market have conniptions and he'll back
• 34:45
  Speaker 2: off faster than the roadrunner.
• 34:47
  Speaker 1: Is your sense of its ability to remain the world's
• 34:53
  Speaker 1: reserve currency and a strong currency, is it based on
• 34:56
  Speaker 1: the fact that trading as such, but the fact that
• 35:00
  Speaker 1: it is the reserve currency? And so when things go wrong, ironically,
• 35:03
  Speaker 1: even if they're sparked by the US, the whole world
• 35:05
  Speaker 1: puts their money in US treasuries.
• 35:07
  Speaker 2: Yes, that's part of it. And it's also because it's
• 35:09
  Speaker 2: the collateral that's used around the world, those US treasuries.
• 35:12
  Speaker 1: Yeah.
• 35:13
  Speaker 2: So that's the biggest thing. That's my understanding. And it's
• 35:17
  Speaker 2: not going to be dislodged anytime soon, nor is the
• 35:20
  Speaker 2: US government and the Federal Reserve going to roll over
• 35:23
  Speaker 2: and say, take our hegemony like that easily. They can
• 35:26
  Speaker 2: make life very difficult.
• 35:28
  Speaker 1: There's a bottom line where they won't jeopardize their own
• 35:31
  Speaker 1: preeminence in currency markets.
• 35:34
  Speaker 2: Well, they don't want to give up that power anytime soon,
• 35:37
  Speaker 2: do they? Because, I mean, they have weaponized the US
• 35:40
  Speaker 2: dollar geopolitically with Russia, and that's what's caused China and
• 35:44
  Speaker 2: these other countries to be looking to increase their gold
• 35:48
  Speaker 2: holdings and looking to create an alternative to the US dollar.
• 35:53
  Speaker 2: But ultimately, James, it's very hard because everybody, when they
• 35:58
  Speaker 2: go out to borrow whatever they need, the collateral, and
• 36:02
  Speaker 2: you're not going to by Chinese treasuries or the equivalent,
• 36:07
  Speaker 2: nor probably is there the liquidity to actually do it.
• 36:10
  Speaker 2: So I think the demise of the US dollar is overstated.
• 36:15
  Speaker 2: I think if you invest in the US, you just have.
• 36:17
  Speaker 3: To take a long-term view that over the balance of time,
• 36:21
  Speaker 3: the share price capital appreciation of the shares will do
• 36:25
  Speaker 3: you well enough. Trying to hedge currencies is even impossible
• 36:29
  Speaker 3: for the big boys, isn't it, James?
• 36:32
  Speaker 2: Let alone our little mere mortals.
• 36:34
  Speaker 1: Matt, let me tell you, they get it so wrong
• 36:39
  Speaker 1: so often that the chances you'll get it right are
• 36:42
  Speaker 1: very slim. So just, yes, look, it would seem, we're
• 36:45
  Speaker 1: not talking to you, Matt, we're talking to all the
• 36:47
  Speaker 1: Matts in the world hedging, you know, really, don't worry
• 36:50
  Speaker 1: about it, particularly if you are a long-term investor. And
• 36:53
  Speaker 1: as for whether the US will drop just because whatever,
• 36:57
  Speaker 1: and you didn't mention Trump, but the narrative at the
• 36:58
  Speaker 1: moment is that what he plans will weaken the US dollar.
• 37:02
  Speaker 1: Don't know about that either. OK, terrific. Hey, thank you
• 37:05
  Speaker 1: very much, Danielle. It was great to talk to you today,
• 37:07
  Speaker 1: as always. Regular guest on the show.
• 37:10
  Speaker 2: Pleasure, James. Lovely to chat with you. And thank you
• 37:13
  Speaker 2: so much for having me on.
• 37:14
  Speaker 1: Oh, you're very welcome. And lovely to have you back
• 37:16
  Speaker 1: on the show. OK, folks, as I have asked for
• 37:20
  Speaker 1: a week or two, if you are enjoying the podcast,
• 37:22
  Speaker 1: thank you. Thanks for all the ratings and everything. But
• 37:24
  Speaker 1: what would be really good would be if you would
• 37:27
  Speaker 1: just mention it to one other person in your circle
• 37:30
  Speaker 1: that you like it. That would be our little reward,
• 37:33
  Speaker 1: and we'd love that. All right. Communications. Let's have some more.
• 37:37
  Speaker 1: Let's have some questions, observations. Even tell us what you
• 37:41
  Speaker 1: do when you're listening to the podcast for our own entertainment,
• 37:44
  Speaker 1: for the audience's entertainment. All right. The email, themoneypuzzle at theaustralian.com.au.
• 37:50
  Speaker 1: Talk to you soon.
• 37:59
  Speaker 2: Thank you.