Latest / The Money Puzzle / Your shares in 2025- Part 1 : Sharemarket outlook

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Your shares in 2025- Part 1 : Sharemarket outlook · The Money Puzzle

0:10
Speaker 1: Hello, and welcome to The Australian's Money Puzzle Podcast. I'm
0:13
Speaker 1: James Kirby, the Wealth Editor at The Australian. Welcome aboard, everybody,
0:18
Speaker 1: and welcome to the first in our short series of
0:21
Speaker 1: special summer editions. The idea of this series is to
0:25
Speaker 1: give you a perfect launching pad for your investment ambitions
0:30
Speaker 1: in the year ahead. Now, over the coming episodes, we're
0:34
Speaker 1: going to talk about shares. We're going to talk about property.
0:37
Speaker 1: We're of investing in 2025. Today, we launch the series
0:44
Speaker 1: with the first of a two-part episode on your shares
0:48
Speaker 1: in 2025. We're going to talk today about share markets,
0:52
Speaker 1: the actual outlook for the wider markets, the ASX, the
0:55
Speaker 1: S & P, the NASDAQ. Next week, we'll talk about
0:58
Speaker 1: individual shares. My guest today is Mark Jokum. He is
1:02
Speaker 1: the investment strategist at GlobalX ETFs. How are you, Mark?
1:08
Speaker 2: Doing really well, James. Thanks for having me on the show.
1:10
Speaker 2: I always enjoy our chats.
1:11
Speaker 1: Thanks for volunteering for this one. This is the hot seat, Mark.
1:15
Speaker 1: This is the one where people will ring you and say,
1:17
Speaker 1: you were on that show and you said such and
1:21
Speaker 1: such was going to happen. So we put that proviso
1:23
Speaker 1: out there that no one knows what's going to happen.
1:25
Speaker 1: But let's take a look systematically. I think if we might,
1:28
Speaker 1: we might start with the ASX. a pretty good year
1:33
Speaker 1: for our market this year. We can always rely on
1:36
Speaker 1: our dividend yield, which comes in at a little over 4%.
1:39
Speaker 1: And that does make the ASX a more stable market.
1:44
Speaker 1: But unfortunately, it seems to be a slower dollar market
1:47
Speaker 1: in recent years, Mark. Is that a fair thing to say?
1:49
Speaker 2: Yeah, I think that's quite fair to say, James. We've
1:53
Speaker 2: seen the ASX perform well for the year. It's up
1:55
Speaker 2: just over 16% year to date. But A lot of
1:58
Speaker 2: that has come from the income side. In Australia, we
2:02
Speaker 2: have been lucky to have a high dividend yield relative
2:05
Speaker 2: to the broader developed markets. That being said, the dividend
2:09
Speaker 2: yield has actually fallen to some of the lowest levels
2:12
Speaker 2: we've seen in the last few years. So people familiar
2:15
Speaker 2: with the 4% to 5% may have to get used
2:17
Speaker 2: to maybe the 3% to 4% range. And if you
2:20
Speaker 2: look in terms of what's really been driving the Australian
2:23
Speaker 2: share market It hasn't been the earnings growth. It's been
2:26
Speaker 2: the price that investors have been willing to pay for
2:29
Speaker 2: some of these companies, the banks who have been on
2:31
Speaker 2: an absolute tear this year. And given they've performed well,
2:35
Speaker 2: they've got relatively high dividend yields. Next year, when we're
2:38
Speaker 2: looking into 2025, earnings growth might be relatively muted and
2:42
Speaker 2: we might see the multiple that people are willing to
2:45
Speaker 2: pay for ASX stocks fall, which is why a lot
2:49
Speaker 2: of consensus is predicting that the ASX will be relatively
2:52
Speaker 2: flat over the next 12 months. But like you said,
2:54
Speaker 2: that cushion or buffer of what investors and Aussies love
2:57
Speaker 2: in income, particularly trusted forms of income, may see a
3:01
Speaker 2: flight of capital come into the Australian market as well.
3:03
Speaker 1: So looking at 2024, when we say at 16% or so,
3:07
Speaker 1: there or thereabouts, 3% to 4% of that was dividends
3:11
Speaker 1: and the rest was price growth. So if you say
3:15
Speaker 1: that when people talk about next year being flat, if
3:17
Speaker 1: 2025 was flat, that would mean that the ASX is
3:22
Speaker 1: more or less where it is at the moment. on
3:24
Speaker 1: the 8,000 mark, but we still get that 3% or 4%
3:28
Speaker 1: dividend yield. So it's flat price-wise, but for us, there's
3:30
Speaker 1: always the dividend yield. Do we pay too high a
3:33
Speaker 1: price as a market for that 4% dividend yield? Or
3:38
Speaker 1: as you say, it's even less than that now.
3:40
Speaker 2: Yeah, sometimes some people might say that we're paying a
3:43
Speaker 2: little bit high. I mean, if you look at some
3:44
Speaker 2: of our Australian banks, they are some of the most
3:47
Speaker 2: expensive banks in the world, trading at 19 times earnings.
3:51
Speaker 2: And when you think about the equity risk premium or
3:54
Speaker 2: how much willing to risk to invest in shares over bonds,
3:57
Speaker 2: when you're looking at some of the risk-free rates or
3:59
Speaker 2: some of the bond yield that some of these big
4:00
Speaker 2: banks are paying, some may argue, why am I taking
4:04
Speaker 2: such a higher risk for a lower return profile? Banks
4:07
Speaker 2: themselves have been a fantastic source of dividends, fantastic source
4:12
Speaker 2: of return. Funnily enough, James, most of the bank's returns
4:15
Speaker 2: from a capital perspective, their price returns have actually been
4:18
Speaker 2: negative over the past decade. with the exception of a
4:21
Speaker 2: few like Macquarie and CBA. So with an environment that
4:24
Speaker 2: we're heading in, lower interest rates, we might have a
4:27
Speaker 2: bit of net interest margin pressures of some of the banks.
4:30
Speaker 2: And these dividends have risen, but the payout ratios that
4:33
Speaker 2: these banks are providing have also risen as well. So
4:37
Speaker 2: for a lot of investors, they may think, well, how
4:39
Speaker 2: sustainable are these dividends that are going to be paid
4:41
Speaker 2: for the banks if you've had payout ratios rise from
4:43
Speaker 2: around about 70% to closer to 80%? So overall, even
4:48
Speaker 2: though bank earnings went backwards really in 2024, there could
4:52
Speaker 2: be an expected rebound next year. That's why people have
4:55
Speaker 2: bid up these banks a lot. So are we paying
4:57
Speaker 2: too much? Potentially. But overall, there still is a lot of,
5:00
Speaker 2: from an income perspective, a lot of attraction within the
5:03
Speaker 2: Australian banks.
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Speaker 1: So the powers that be, the brains trust for want
5:08
Speaker 1: of a better word, are saying that they don't think
5:12
Speaker 1: Australian share markets will do much In 2025, they have
5:18
Speaker 1: a variety of reasons for that. One of them is
5:20
Speaker 1: pure mathematics that the earnings growth isn't there. And I
5:25
Speaker 1: imagine there's also some skepticism that we could repeat what
5:29
Speaker 1: we did in 2024. Now, here's the thing, Mark. The
5:34
Speaker 1: market ASX performance, that terrific performance of 16% or so,
5:40
Speaker 1: which is double what you might reasonably expect on an
5:43
Speaker 1: average year.
5:44
Speaker 2: Yeah. I mean, if you look at historically, since the
5:46
Speaker 2: early 1900s, Australian share market has done around 9% or 10%.
5:50
Speaker 2: So that is a little bit above average.
5:52
Speaker 1: It's quite a bit above average. So all these people
5:55
Speaker 1: who are telling us that the market won't do anything
5:57
Speaker 1: in 2025 and could finish the year where it is now,
6:01
Speaker 1: these same people all said, sell banks. And the banks
6:07
Speaker 1: are up about 30%. They drove the whole market. They
6:10
Speaker 1: turned the whole market. It's the reason we did the 16.
6:13
Speaker 1: It's the key reason we did the 16. So should
6:15
Speaker 1: we listen to them?
6:16
Speaker 2: Well, I guess this is to your earlier point, James,
6:18
Speaker 2: around the perils of forecasting. There always seems to be
6:21
Speaker 2: some consistency that emerges with these forecasts. There's a tendency
6:25
Speaker 2: for large institutions to cluster, particularly around what consensus they're
6:30
Speaker 2: thinking or rounded figures. And there's generally either unfounded optimism
6:35
Speaker 2: or pessimism within us.
6:37
Speaker 1: But they feel comfortable. If they all say the same thing,
6:39
Speaker 1: then nobody stands out as being particularly pessimistic.
6:42
Speaker 2: Hopeless well yeah again the analogy is you know back
6:45
Speaker 2: in the 1990s no one got fired for recommending ibm
6:49
Speaker 2: so yeah there's this essence of job security as well
6:51
Speaker 2: but i always am on the believer that short-term forecasts
6:54
Speaker 2: have little relevance it's really about the long term but
6:57
Speaker 2: also around the earnings growth so even though a lot
7:00
Speaker 2: of the a lot of big banks have said to
7:02
Speaker 2: sell on banks well it's proven that it's actually been
7:04
Speaker 2: a bit of a bad strategy going into this year
7:07
Speaker 2: It's really about how you want to position your portfolios,
7:09
Speaker 2: whether you want to take certain sectoral bets or have
7:12
Speaker 2: the overarching view of the entire market, which encompasses a
7:15
Speaker 2: lot of different indices. And from the Australian market, banks
7:18
Speaker 2: have absolutely smashed the lights out compared to the miners
7:22
Speaker 2: and resources. There may be some sluggish growth coming out
7:25
Speaker 2: of the Chinese demand, which could be a bit of
7:28
Speaker 2: a headwind for some of these companies. But a lot
7:30
Speaker 2: of people are thinking there could be mean reversion and
7:32
Speaker 2: some of the miners and resources could draw back some
7:34
Speaker 2: of our performance. So overall, it still is a reason
7:38
Speaker 2: to be invested into shares, particularly in the Australian market.
7:41
Speaker 2: But in terms of which sectors are going to dominate,
7:43
Speaker 2: very hard to say leading into 2025.
7:46
Speaker 1: Okay. Now, those forecasts, the consensus being that the market
7:53
Speaker 1: does very little price-wise, is there much variation? Are there extremes?
7:58
Speaker 1: Are there people saying the market's going to drop 20%
8:01
Speaker 1: or lift 20%? Is there anyone saying that?
8:04
Speaker 2: No one's incredibly bearish. I have seen some forecasts from
8:08
Speaker 2: some of the big US investment banks that have forecasted
8:11
Speaker 2: the price target to be around 7,900. So that does
8:13
Speaker 2: imply a little bit of a fall of a few percent,
8:16
Speaker 2: but there's no one who's been incredibly bullish either, which
8:18
Speaker 2: is why some consensus has been around that 8,400, 8,500 target,
8:22
Speaker 2: which as of recording today is relatively flat. A little
8:25
Speaker 2: bit different to some of our US counterparts where we
8:28
Speaker 2: have seen a little bit more dispersion in some of
8:30
Speaker 2: the price targets too.
8:31
Speaker 1: And looking inside the sectors then, I mean, our market
8:35
Speaker 1: is very much banks. Is there a sense that banks
8:37
Speaker 1: won't run in 2025? And miners, I mean, yes, there's
8:43
Speaker 1: always issues around China, but I see iron ore again
8:45
Speaker 1: cruising over the $ 100 a ton mark, signaling robust health,
8:49
Speaker 1: you'd have to suggest, for our miners who are very
8:53
Speaker 1: much iron ore miners and the big stocks even more so.
8:56
Speaker 1: So is there any sort of sectoral forecast worth telling
9:00
Speaker 1: us about?
9:01
Speaker 2: Yeah, if you look at the underlying earnings of some
9:03
Speaker 2: of the companies, it probably is a bit more upside
9:05
Speaker 2: within some of the targets for some of the miners
9:08
Speaker 2: versus the banks, which are expected to decline a little bit.
9:11
Speaker 2: I think most of the analysts have sell side ratings
9:14
Speaker 2: or either hold position on some of the banks versus
9:16
Speaker 2: the miners where there is a bit more of a
9:18
Speaker 2: buying or an overweight. But like you said, iron ore
9:21
Speaker 2: prices are relatively subdued at the moment, around $ 100 a tonne.
9:25
Speaker 2: And that's on the back of a lot of the,
9:27
Speaker 2: it's really a story about China and what that demand
9:30
Speaker 2: is going to do relative to the Australian economy. But
9:33
Speaker 2: you've still got a diverse set of miners who are
9:35
Speaker 2: operating in different areas outside of iron ore. Copper has
9:38
Speaker 2: been incredibly popular in terms of its electrification and application
9:42
Speaker 2: towards artificial intelligence. There may be a turnaround in the
9:46
Speaker 2: lithium market leading into an election year where we've got
9:49
Speaker 2: the opposition party who's a lot more bullish on sectors
9:53
Speaker 2: like uranium that could play a part for uranium mining.
9:55
Speaker 2: Australia's got about a third of the reserves when it
9:57
Speaker 2: comes to uranium. So there's other sectors that people could
10:01
Speaker 2: be looking at as well. So far this year, technology
10:04
Speaker 2: has been one of the best performing underlying sectors year
10:07
Speaker 2: to date, followed by financials, whereas some of the worst
10:10
Speaker 2: performing sectors have actually been energy and materials so far.
10:13
Speaker 2: So there could be a little bit of mean reversion,
10:16
Speaker 2: but that's where it makes sense to own a broad market.
10:19
Speaker 2: Or let's say you actually don't want to own the
10:22
Speaker 2: banks or some of the miners, and you want to
10:24
Speaker 2: play more on the industrials, the tech side, or really
10:27
Speaker 2: the other half of the market, you could look at
10:29
Speaker 2: funds that actually exclude both banks and miners for your
10:32
Speaker 2: Aussie allocation. So various ways to play it based on
10:35
Speaker 2: your sector positioning next year.
10:37
Speaker 1: As an investment strategist, are you a believer in reversion
10:39
Speaker 1: to the mean? Do you think that What did you say, 10%
10:42
Speaker 1: every year on the Australian share market since 1900? Do
10:46
Speaker 1: you think that's it? It's always 10%?
10:48
Speaker 2: I am a believer in mean reversion, but not over
10:50
Speaker 2: the short term, because things can run hot for a
10:53
Speaker 2: long period of time. Like we've seen with the whole
10:55
Speaker 2: idea of growth versus value, everyone is saying that value
10:58
Speaker 2: stocks and the value factor has to eventually come back,
11:02
Speaker 2: but they can go on wild rides of our performance
11:05
Speaker 2: for a long period of time. So eventually there will
11:07
Speaker 2: be reversion. But in terms of calling that, and I
11:10
Speaker 2: think that's the tough thing with predictions, it's not only
11:12
Speaker 2: do you have to get the call right on which
11:14
Speaker 2: sector you want to be positioned in or which stock,
11:16
Speaker 2: but you have to get the timing right around when
11:18
Speaker 2: to buy and also the timing right of when to sell,
11:21
Speaker 2: which is a trifecta or a very hard recipe for
11:24
Speaker 2: investors to do. So to answer your question, I am
11:27
Speaker 2: a believer in mean reversion, but when it will come,
11:30
Speaker 2: no one really knows that.
11:31
Speaker 1: I've had some deeply frustrated value investors on the show.
11:34
Speaker 1: And they really thought their day had come in 2024.
11:36
Speaker 1: They really thought it was all going to fall into place,
11:39
Speaker 1: and it didn't. The outperformance in the market in 2024
11:42
Speaker 1: was technology and finance. The earnings don't suggest that at all.
11:47
Speaker 1: We take a break and look at an extreme version
11:50
Speaker 1: of what we're seeing, which is the US market, which,
11:52
Speaker 1: of course, is going to dictate the world share market,
11:55
Speaker 1: and it's going to dictate our own ASX market in 2025,
11:57
Speaker 1: back in a moment. Hello and welcome back to the
12:12
Speaker 1: Australia's Money Puzzle podcast. I'm James Kirby. I'm talking to
12:15
Speaker 1: Mark Jokum of GlobalX ETFs and we are talking about
12:19
Speaker 1: what is going to happen in 2025 on the share markets. Now, Mark,
12:25
Speaker 1: cast your mind back this time last year. People would
12:29
Speaker 1: have been saying, well, that was a very good year
12:31
Speaker 1: on the US market. You can't expect that all to
12:34
Speaker 1: happen again. You can't expect subdued or modest ordinary earnings
12:40
Speaker 1: growth and terrific price appreciation on the market. You can't
12:45
Speaker 1: expect Donald Trump to win again, good God, and have
12:47
Speaker 1: the whole Trump bump again. And of course, it all
12:50
Speaker 1: came to pass. And just to top it off, you
12:52
Speaker 1: had the whole thematic excitement around AIs to the point
13:01
Speaker 1: that the world's biggest share is now NVIDIA. which was
13:06
Speaker 1: virtually unknown, I would say, a year ago. So I
13:09
Speaker 1: think that was a very good approach for listeners, Mark,
13:12
Speaker 1: at what we did there and what you did at
13:14
Speaker 1: the first segment of the show, where you give an idea.
13:16
Speaker 1: We have to have something to hang our hat on.
13:18
Speaker 1: And we're not saying we believe these forecasts. We're all
13:21
Speaker 1: smart enough to know that forecasts are forecasts. Nobody knows
13:23
Speaker 1: the future. However, let's at least know what they are.
13:28
Speaker 1: So the consensus forecast for the ASX... was basically that
13:34
Speaker 1: the share prices would go nowhere and the dividends would
13:36
Speaker 1: come in and we might do 3% or 4% total return. Now,
13:41
Speaker 1: that's not the situation in the U.S. Tell us about
13:44
Speaker 1: what the U.S. markets are looking like, what the forecasts
13:47
Speaker 1: are looking like.
13:48
Speaker 2: Very interesting market. And like you said, James, not many
13:51
Speaker 2: people would have expected the S & P 500, which is,
13:55
Speaker 2: I guess, the benchmark that a lot of people refer
13:57
Speaker 2: to for U.S. equities, to have done so well, closing
14:00
Speaker 2: in on close to 3%. 30% for the year on
14:02
Speaker 2: the back of a great year for 2023 that it
14:05
Speaker 2: had before. And looking into 2025, we've actually seen a
14:09
Speaker 2: lot more bullishness that continues within the US share market.
14:13
Speaker 2: And I think one of the reasons for that is
14:15
Speaker 2: the US share market is projected to drive most of
14:18
Speaker 2: the earnings growth versus some of the other markets. In Australia,
14:22
Speaker 2: you're relatively flat, maybe a few percent in terms of
14:24
Speaker 2: earnings growth, but companies in S & P 500 are
14:27
Speaker 2: expected to generate earnings growth of about 12%. So a
14:31
Speaker 2: lot of price targets for the US market and S &
14:34
Speaker 2: P 500 are hovering around 6,500, which implies about an 8%
14:38
Speaker 2: upside from where we are now. But you'd have a
14:41
Speaker 2: lot more divergence compared to the Australian market, where you
14:44
Speaker 2: have seen some banks being as bearish as around 5,800,
14:48
Speaker 2: so a little bit of a decline, whereas some banks
14:50
Speaker 2: being as bullish as reaching around 7,000 points. And we've
14:54
Speaker 2: just reached 6,000, which has been a record high. A
14:57
Speaker 2: lot of people are confused record highs doesn't that mean
15:00
Speaker 2: it's due for a pullback but the valuations are justified
15:04
Speaker 2: because a lot of this has been supported by stronger
15:07
Speaker 2: earnings growth from these underlying companies and you mentioned before
15:10
Speaker 2: the likes of nvidia and apple funnily enough they are
15:12
Speaker 2: playing a bit of a tag between who's the most
15:15
Speaker 2: valuable company right now it's apple the next day it
15:17
Speaker 2: changes So really, really big earnings growth from a lot
15:21
Speaker 2: of these tech giants as well, driving a lot of
15:23
Speaker 2: that U.S. share market return.
15:24
Speaker 1: So even if it came to pass, and let's talk
15:26
Speaker 1: about that consensus. This, folks, is a consensus estimate for
15:31
Speaker 1: the price appreciation or the percentage increase that would occur
15:36
Speaker 1: on U.S. markets as represented by the S & P 500.
15:39
Speaker 1: And what the brokers are saying is that they're expecting
15:43
Speaker 1: something in the order of 8% for that market. Now, 8%
15:46
Speaker 1: is a perfectly reasonable solid, good return. However, a couple
15:52
Speaker 1: of things. It would be less than a third of
15:56
Speaker 1: the return this year they've enjoyed in the US. That's
15:59
Speaker 1: one thing. The second thing is that the dividend yields
16:02
Speaker 1: where we talked about in Australia, you always, for total return,
16:06
Speaker 1: add on 3% to 4% for the dividends. You don't
16:08
Speaker 1: add on much in the US at all. What would
16:10
Speaker 1: you sensibly add on?
16:12
Speaker 2: Usually 1% to 2% for the US. A lot of
16:14
Speaker 2: the US companies reinvest in their growth. They spend a
16:16
Speaker 2: lot on CapEx. Dividends and income is not a big
16:19
Speaker 2: focus for US investors. That being said, there are ways
16:23
Speaker 2: to get income from the US by focusing on high
16:25
Speaker 2: dividend yielding sectors, whether it be industrials, telcos, and other sectors.
16:30
Speaker 2: But if you look at the US index, predominant of
16:32
Speaker 2: it is in communications and tech.
16:34
Speaker 1: And their high dividend would be like 3% or 4%,
16:36
Speaker 1: while our high dividend would be 4% and 5%. And
16:40
Speaker 1: then you get franking on top of that, taking home 6%
16:43
Speaker 1: or 7%. So there's no competition on that front, is
16:45
Speaker 1: there really?
16:46
Speaker 2: Exactly right. You get the added tax benefits of having
16:49
Speaker 2: exposure to high dividends in Australia. But it's really important, James,
16:52
Speaker 2: that a lot of investors apply a total return approach
16:54
Speaker 2: to investing. You incorporate both the capital and the dividend side.
16:58
Speaker 2: So whilst the Australian market can definitely provide income, and
17:00
Speaker 2: maybe that's where a lot of investors who are income
17:02
Speaker 2: orientated want to focus, there still is this huge market
17:05
Speaker 2: being the US, which is expected to from an earnings perspective,
17:08
Speaker 2: to grow close to double digits, you could be missing
17:10
Speaker 2: out on that capital side if you only focus on income.
17:13
Speaker 2: So we still have, I guess, from GlobalX's perspective, a
17:16
Speaker 2: view that the US will continue to march on. They
17:18
Speaker 2: continue to be in this mid-cycle expansionary phase. Considering that
17:22
Speaker 2: we've seen this renewed optimism from the US election, there's
17:26
Speaker 2: a bit of animal spirits in the air, a bit
17:27
Speaker 2: of a risk-on sentiment. Some of the key appointments from
17:31
Speaker 2: Trump seem to be very bullish for the market overall.
17:34
Speaker 2: And US companies, they've got some of the biggest capitalist
17:37
Speaker 2: machines in the world. So a lot of people might think, well,
17:40
Speaker 2: I have to be involved in the mega cap tech
17:42
Speaker 2: names to get those big returns because that's where a
17:45
Speaker 2: lot of the returns have come. But funnily enough, the
17:48
Speaker 2: contribution of these magnificent seven names, the likes of Nvidia, Apple, Microsoft,
17:53
Speaker 2: has actually decreased in 2024. in 2023, they contributed close
17:57
Speaker 2: to two thirds of the total markets gained. Whereas this year, James,
18:01
Speaker 2: they've actually contributed around about half. Still a lot, don't
18:04
Speaker 2: get me wrong, but you're starting to see a bit
18:07
Speaker 2: more of a potentially broadening of them. Concentration is more
18:11
Speaker 2: a feature than it is a bug of markets, because naturally,
18:13
Speaker 2: there's only a handful of companies that drive the majority
18:16
Speaker 2: of total shareholder returns. When you're seeing this broadening out
18:20
Speaker 2: of the markets, we could see a bit more interest
18:22
Speaker 2: in smaller companies in the US or other sectors, as
18:26
Speaker 2: there seems to be this diversification of earnings and improved sentiment,
18:30
Speaker 2: we may see new players come in to the leading
18:33
Speaker 2: performers of the US market. If you look at some
18:36
Speaker 2: of the leading companies in the US so far, Nvidia
18:39
Speaker 2: and some other companies have been huge contributors, but there's
18:43
Speaker 2: also other companies that have done exceptionally well.
18:45
Speaker 1: Just tell us who they are, outside the Magnificent Seven,
18:48
Speaker 1: outside the tech titans.
18:50
Speaker 2: Yeah, so NVIDIA has been the biggest one. They are
18:53
Speaker 2: up about 100% year to date. But then you've got
18:56
Speaker 2: other companies like energy companies. There's a Texas-based company called
18:59
Speaker 2: Vistra Corporation. They are up over 300% year to date.
19:04
Speaker 2: You've got other companies such as Texas Pacific Land Corp
19:08
Speaker 2: as well. They are also more involved in land and
19:11
Speaker 2: resource management. They are up around 200% for the year.
19:14
Speaker 2: So you are seeing this broadening.
19:17
Speaker 1: What about the blue chips, the original Dow blue chips?
19:22
Speaker 1: Have they come to the party yet?
19:24
Speaker 2: Yeah, I mean, the Dow Jones is at what, around
19:27
Speaker 2: about 44,000 at the moment, 45,000 at all time highs.
19:31
Speaker 2: So you're still seeing strong support for U.S. equities. And
19:34
Speaker 2: that's why I think it's important to remain invested. You
19:36
Speaker 2: can be invested in the mega cap tech names or
19:38
Speaker 2: the FANG names. But having exposure to the blue chips,
19:42
Speaker 2: whether it's your Dow Jones, looking at smaller cap names,
19:44
Speaker 2: looking a bit more of a broadening trade is important,
19:47
Speaker 2: particularly because Trump is very pro-business. pro-deregulation, reducing corporate taxes.
19:53
Speaker 2: We're in a disinflationary environment. He's also very supportive of
19:57
Speaker 2: energy companies as well. You know, the mantra, drill, baby, drill.
20:01
Speaker 1: And I suppose, Mark, the rational part of this is
20:04
Speaker 1: you cut corporate taxes, you immediately lift corporate profits, you
20:07
Speaker 1: immediately lift earnings. Share prices should go up. So this
20:10
Speaker 1: is a real driver in the short term. But what
20:14
Speaker 1: about the longer term? Like any government that gets elected
20:19
Speaker 1: on promises and various policy changes, the honeymoon ends. We
20:24
Speaker 1: don't know how it will end, but it will end.
20:27
Speaker 1: And we have deeper concerns about tariffs with the U.S.,
20:35
Speaker 1: and how that would actually ultimately slow everything, including the US.
20:39
Speaker 2: Yeah, I think you're totally right, James. And tariffs in
20:42
Speaker 2: itself is in fact inflationary. When you think about the
20:45
Speaker 2: impact to the underlying consumer, the underlying US companies, and
20:50
Speaker 2: even though what we're seeing, particularly within global markets, is
20:53
Speaker 2: economies are flexing their geopolitical power. And the US has
20:58
Speaker 2: come out to say we want America first, tariffs on everything.
21:01
Speaker 2: That in itself could create some pressures for some of
21:04
Speaker 2: the underlying companies, given that their input costs may rise.
21:07
Speaker 2: So yes, you may see more development coming out of
21:09
Speaker 2: the US. But I think a lot of these measures,
21:12
Speaker 2: which is the opposite of what we've been used to,
21:14
Speaker 2: it's all been about free trade agreements, globalization, things are changing.
21:18
Speaker 2: But the US is definitely still keen to power on.
21:22
Speaker 2: And if you look at some of the key appointments
21:24
Speaker 2: I was mentioning before that Trump has built out, there
21:27
Speaker 2: does seem this idea of maturity coming in. They've got
21:30
Speaker 2: Scott Besant, who's the Treasury Secretary, and he's come in
21:34
Speaker 2: with this 3-3-3 policy. He wants 3% GDP growth. He
21:38
Speaker 2: wants to reduce the budget deficit by 3%. And he
21:41
Speaker 2: wants to increase the barrels of oil they're producing by
21:45
Speaker 2: 3 million barrels a day. So you are getting this element,
21:48
Speaker 2: even though there's less globalization and tariffs, The whole idea
21:53
Speaker 2: of Trump 2.0 when he gets inaugurated in January may
21:57
Speaker 2: create some uncertainty. These US companies with strong franchises are
22:01
Speaker 2: going to continue to generate significant profits unless there is
22:06
Speaker 2: regulatory intervention, trade wars. We'll need to monitor those risks closely.
22:10
Speaker 2: It can be a challenge for growth if these tariffs materialize.
22:13
Speaker 2: But overall, we are seeing some of the greatest capitalist
22:16
Speaker 2: machines experiencing strong earnings growth in 2024 set to continue.
22:21
Speaker 1: Into 2025 actually one thing i wanted to close this
22:23
Speaker 1: segment off on is the theory that as it trickles
22:27
Speaker 1: down through the u.s and the magnificent seven already fading
22:32
Speaker 1: as a contributor to the overall market returns excellent market
22:38
Speaker 1: returns are coming out of the u.s then there's the
22:41
Speaker 1: theory that the hottest part of the market will be
22:43
Speaker 1: small caps what do you think of that u.s market
22:47
Speaker 1: small caps.
22:48
Speaker 2: The thing about these large tech companies or these hyperscalers,
22:52
Speaker 2: as they're known, they're expected to increase their capital expenditure
22:56
Speaker 2: into 2025 to hundreds of billions of dollars. That significant
23:01
Speaker 2: spending will benefit a wide variety of sectors, whether you're
23:04
Speaker 2: looking at data centers, engineering and construction, nuclear and renewable power,
23:09
Speaker 2: gas powered electricity. There's so many different sectors that could
23:12
Speaker 2: benefit from it, which is why you're seeing a lot
23:14
Speaker 2: more interest in this broadening out of the trade sector.
23:16
Speaker 2: A lot of people are thinking, well, a lot of
23:18
Speaker 2: these tech companies that are reporting, not only, James, do
23:21
Speaker 2: you need to beat earnings expectations, but you almost need
23:24
Speaker 2: to beat the beat, if that makes sense. And that's
23:27
Speaker 2: why you'll see so much scrutiny on these big tech companies,
23:30
Speaker 2: which is why a lot of people are saying there
23:32
Speaker 2: has to be this broadening out of this trade, this
23:34
Speaker 2: reversion of small companies, which is underperformed versus large cap companies.
23:38
Speaker 2: And we do see quite a bit of growth happening
23:41
Speaker 2: in some of these smaller companies. Relative to where they're
23:43
Speaker 2: trading at the moment, because if you look at where
23:46
Speaker 2: the S & P 500 is trading at, it may
23:48
Speaker 2: look elevated. But as long as the earnings continue to
23:51
Speaker 2: support it, that will justify the valuations. There's been a
23:53
Speaker 2: bit of compression in the small companies area. So there
23:56
Speaker 2: could be a bit of a rotation and we've started
23:58
Speaker 2: to see more money flow into smaller companies or broader sectors.
24:02
Speaker 1: That would be small company ETFs, small cap ETFs.
24:07
Speaker 2: Yeah, small companies ETFs, you've got different companies that are
24:11
Speaker 2: a bit more evenly distributed as well. But yeah, we
24:14
Speaker 2: have seen more flow into some of these smaller companies,
24:17
Speaker 2: whether it be both active or index-based strategies. And I
24:20
Speaker 2: guess those are a little bit different to your broad
24:22
Speaker 2: cap because you're not only holding the Magnificent Seven, but
24:25
Speaker 2: you're holding hundreds, if not thousands of companies that have
24:28
Speaker 2: different characteristics and exposures to the mega cap companies. If
24:32
Speaker 2: you look at a small cap index, it's around about 20% financial,
24:36
Speaker 2: maybe 15% industrial, whereas tech is only around about 10%
24:39
Speaker 2: to 15%. Very different to your mega cap indices such
24:44
Speaker 2: as the S & P 500 or the NASDAQ 100.
24:47
Speaker 1: Okay, now we'll take a short break. And folks, we
24:49
Speaker 1: will be back and we will take a quick look
24:51
Speaker 1: at some other areas of the markets in 2025. We'll
24:56
Speaker 1: take a look at the NASDAQ possibilities, emerging markets, and stocks.
25:02
Speaker 1: quick glimpse at gold, which I would put in this
25:05
Speaker 1: very tradable area. Okay, back in a moment. Hello, welcome
25:21
Speaker 1: back to the Australian's Money Puzzle. James Kirby talking to
25:24
Speaker 1: Mark Jogham of Global X ETFs. We're talking big picture
25:28
Speaker 1: here today, folks. We really are. NASDAQ then. We would
25:33
Speaker 1: traditionally expect NASDAQ to shoot out the lights, that if
25:37
Speaker 1: the S & P was doing 8%, we might think
25:39
Speaker 1: the NASDAQ is going to do 16% or something like that.
25:42
Speaker 1: What are they talking about on the NASDAQ, Mark?
25:46
Speaker 2: Yeah, we talked about the S & P 500 being
25:49
Speaker 2: a key contributor, but the NASDAQ, which holds a lot
25:51
Speaker 2: of these mega cap names that we were talking about before,
25:54
Speaker 2: they've done exceptionally well to pull the NASDAQ to record
25:57
Speaker 2: highs at about 2,100 points at the moment. where the
26:01
Speaker 2: price targets are looking closer to $ 2, 300 leading into next year.
26:04
Speaker 2: So that to me is saying that there's still potential
26:07
Speaker 2: upside for the Nasdaq 100 to do a lot of
26:09
Speaker 2: the heavy lifting. And that's because earnings growth, we talked
26:13
Speaker 2: about it before with the S & P 500 to
26:14
Speaker 2: do low double digits, the Nasdaq is looking at doing
26:17
Speaker 2: closer to 18 or 19% next year from an earnings
26:20
Speaker 2: growth perspective. For a lot of investors who want exposure
26:24
Speaker 2: to US shares in particular, The NASDAQ has been this
26:28
Speaker 2: market darling of being a great driver of share market returns.
26:31
Speaker 1: So it did about 30% or so, which is an
26:33
Speaker 1: amazing figure, except that we've seen it so often. But
26:36
Speaker 1: it did 31% or so in 2024, the NASDAQ. And
26:42
Speaker 1: we've ignored the dividend use here entirely. What are they
26:45
Speaker 1: saying as a forecast, as a percentage growth for NASDAQ
26:49
Speaker 1: in 2025?
26:51
Speaker 2: So according to the consensus, you're looking at a target
26:53
Speaker 2: of around 9% to 10% upside, which is a little
26:55
Speaker 2: bit more than S & P 500.
26:57
Speaker 1: And that's cool for NASDAQ people, isn't it?
27:01
Speaker 2: I mean, the NASDAQ tends to be a little bit
27:03
Speaker 2: more volatile than broad indices like the S & P 500.
27:06
Speaker 1: So you may.
27:07
Speaker 2: Experience perhaps wilder divergences like we saw in 2022, where
27:10
Speaker 2: the NASDAQ fell a lot more than the S &
27:12
Speaker 2: P 500. But overall, I think because a lot of
27:16
Speaker 2: these companies continue to derive a lot of their revenue
27:18
Speaker 2: from technology and how much these exposures are to NASDAQ-related indices,
27:25
Speaker 2: you could see these hyperscalers and these tech companies continue
27:29
Speaker 2: to do looking long-term despite concerns around the rich valuations
27:33
Speaker 2: and the NASDAQ or the broader US market trading at
27:36
Speaker 2: a pretty expensive premium. That doesn't necessarily mean a reason
27:40
Speaker 2: not to be invested because, like we said, the business
27:43
Speaker 2: cycle is still in expansion. You've got a pretty healthy
27:45
Speaker 2: labor market. And a lot of these NASDAQ returns have
27:49
Speaker 2: been driven from AI-related activities. And that can continue to drive.
27:53
Speaker 2: We're seeing huge forecasts being expected for some of these
27:57
Speaker 2: AI-related possibilities. And I think a lot of these companies
28:01
Speaker 2: are beginning to monetize a lot of their services. Looking
28:06
Speaker 2: at companies like OpenAI, who use the technology of ChatGPT,
28:11
Speaker 2: they expected to finish 2024 with about $ 5 billion in revenue.
28:15
Speaker 2: And that's expected to grow to $ 10 billion next year.
28:18
Speaker 2: With clear momentum and expanding use cases, AI is going
28:22
Speaker 2: to be a really compelling investment theme leading into 2025.
28:25
Speaker 2: That is very compelling for companies involved in those industries,
28:28
Speaker 2: which tend to be on the NASDAQ overall. So yes,
28:31
Speaker 2: it could be another good year for the NASDAQ. Overall,
28:34
Speaker 2: a lot of the growth is priced in because of
28:36
Speaker 2: the projected earnings growth that a lot of these companies
28:38
Speaker 2: are planning to do. It might just be more on
28:40
Speaker 2: the top line, more from a revenue perspective. Whereas this
28:43
Speaker 2: year has been from an earnings perspective.
28:45
Speaker 1: Which is what the market really loves. All right. Very interesting.
28:49
Speaker 1: So folks, I think the more risk in the market,
28:53
Speaker 1: the less useful the forecast. I would be considerably more
29:00
Speaker 1: persuaded by a forecast for the ASX, whatever that might be,
29:04
Speaker 1: because you're working off certain known knowns, if you know
29:08
Speaker 1: what I mean. And the risk element is subdued because
29:11
Speaker 1: we have a lot of blue chips, police, banks, supermarkets,
29:15
Speaker 1: and miners, where you can have a very good idea
29:17
Speaker 1: of their business. In the US, you have a whole
29:20
Speaker 1: elevated risk and risk-taking, which gives wonderful results. That also
29:24
Speaker 1: means someone talking about NASDAQ doing 10% next year is
29:27
Speaker 1: kind of like, in a way, at its most extreme,
29:31
Speaker 1: utterly useless. I don't mean to... I'm sure you actually
29:35
Speaker 1: agree with me, even though I don't know if you
29:36
Speaker 1: agree with me, do you? I totally agree with you.
29:38
Speaker 2: If you look at the average forecast, for the S &
29:40
Speaker 2: P 500 in 2024, James, so we're recording this at
29:43
Speaker 2: the end of 2024, the average forecast was 4,600. And
29:48
Speaker 2: the upper range of that limit in terms of who
29:50
Speaker 2: was the most bullish was 5,400.
29:51
Speaker 1: And we've blown through 6,000 points.
29:55
Speaker 2: So there was one research company in those forecasts that
29:57
Speaker 2: had an error of around 77% because they were too bearish.
30:01
Speaker 2: That shows there is an issue. While the price factor
30:04
Speaker 2: was wrong, the earnings, funnily enough, was right. So a
30:07
Speaker 2: lot of these people who were forecasting the earnings growth
30:10
Speaker 2: were very accurate. But the reason it's so hard to
30:13
Speaker 2: predict is you don't know what investors are willing to
30:15
Speaker 2: pay for those earnings. And in 2024, the answer was
30:19
Speaker 2: they are willing to pay for a lot for some
30:20
Speaker 2: of these earnings growth. So, yes, with a word of caution,
30:23
Speaker 2: take anything that I say or what the market consensus
30:26
Speaker 2: is saying with a grain of salt, because there's a
30:28
Speaker 2: lot of perils in forecasting.
30:29
Speaker 1: Absolutely. As you say, people who are 70% out, which
30:33
Speaker 1: is pretty bad. If we can quickly, two areas that
30:36
Speaker 1: people who had ETFs and they were looking or people
30:39
Speaker 1: who were trying to diversify their portfolio or listeners on
30:42
Speaker 1: share markets who were using funds or ETFs to do
30:46
Speaker 1: so would be looking to complete the picture. They might
30:48
Speaker 1: look at emerging markets and they might look at gold.
30:51
Speaker 1: On emerging markets, it would seem the election of Trump
30:55
Speaker 1: and his talk about tariffs, a strengthening US dollar couldn't
31:00
Speaker 1: possibly be good for emerging markets. Perhaps I'm wrong. What's
31:04
Speaker 1: the story on that side of things?
31:07
Speaker 2: No, James, your sentiment is correct in terms of a
31:10
Speaker 2: lot of people thinking that the Trump trade is going
31:12
Speaker 2: to be quite bearish for some emerging markets, given a
31:15
Speaker 2: lot of the issues around tariffs, higher for longer interest rates.
31:20
Speaker 2: a strong US dollar because a lot of emerging market
31:23
Speaker 2: debt is denominated in US dollars. So a rising US
31:26
Speaker 2: dollar is generally bad for them, tightening financial conditions. You're
31:30
Speaker 2: not seeing too much out of China. And I think
31:33
Speaker 2: on China, it is a pivotal player in the emerging
31:35
Speaker 2: market story. It's grappling with modest stimulus efforts that seem
31:41
Speaker 2: relatively insufficient to spur a bit of a meaningful recovery.
31:45
Speaker 2: And considering we've seen this, like we saw during 2018
31:47
Speaker 2: and 2019, China still is a very big global manufacturing powerhouse.
31:54
Speaker 2: It dominates that sector estimate around 35 to 40%. So
31:57
Speaker 2: it is quite crucial from a global supply chain. So
32:00
Speaker 2: for investors, China is a bit of a mixed picture.
32:03
Speaker 2: The outlook remains challenging. Corporate earnings might be weak and predictable.
32:08
Speaker 2: Elsewhere in emerging markets, there might be some bright spots.
32:10
Speaker 2: We've seen the likes of Taiwanese companies like Taiwan Semiconductors
32:15
Speaker 2: keep playing in the technological revolution. But we found that
32:19
Speaker 2: India has been a standout performer and one of the
32:22
Speaker 2: fastest growing economies as well, bolstered by strong balance sheets,
32:26
Speaker 2: fiscal maturity. And unlike China, India is driven from domestic revenue.
32:31
Speaker 2: You might be able to insulate some of that risk
32:33
Speaker 2: associated with global trade tensions, even though India is becoming
32:36
Speaker 2: a part of the global environment.
32:39
Speaker 1: It's a very.
32:39
Speaker 2: Compelling growth story, powered from elevated profit margins, strong earnings expectations.
32:45
Speaker 2: There's a big demographical shift as well. India has become
32:48
Speaker 2: the world's largest population, overtaking China. In terms of the
32:53
Speaker 2: Emerging Markets Index, India is likely to be a bigger player.
32:56
Speaker 2: I still see some opportunities emerging within emerging markets.
33:00
Speaker 1: They're country-based rather than the category.
33:03
Speaker 2: Yeah, there might be a bit of country divergence overall.
33:06
Speaker 2: A lot of the forecasts are expecting, even though there
33:09
Speaker 2: might be stronger earnings growth with some of these companies,
33:12
Speaker 2: and because they're trading at such heavy discounts relative to
33:16
Speaker 2: where they valued, You might not see as much upward
33:18
Speaker 2: growth in terms of the price predictions as the US market.
33:22
Speaker 2: So we're also talking about single digits here. But from
33:25
Speaker 2: a country perspective, yes, it could be that there might
33:27
Speaker 2: be a divergence, that a lot more people are interested
33:30
Speaker 2: in emerging markets like India. If you look at what's
33:33
Speaker 2: happening with this AI strategic revolution and some of the
33:36
Speaker 2: associated themes, semiconductors or the companies that are making some
33:40
Speaker 2: of these chips is still going to be a key
33:42
Speaker 2: component within next year's earnings. For people who are looking
33:45
Speaker 2: for these types of companies, It doesn't mean that you
33:48
Speaker 2: shouldn't look within emerging markets. It just might mean people
33:50
Speaker 2: might be a little more tactical with how they allocate
33:52
Speaker 2: towards emerging markets.
33:54
Speaker 1: Okay, I hear what you're saying. I won't push any
33:56
Speaker 1: harder because I don't think anyone could possibly give an
33:58
Speaker 1: answer whether India is going to finally come through in
34:02
Speaker 1: the way that many people have thought it could and would.
34:06
Speaker 1: That's for every individual to make their own bet on. Okay,
34:10
Speaker 1: before you go, one last thing, gold. Now, gold has
34:14
Speaker 1: been good. and has been good for quite some time.
34:17
Speaker 1: And you find that even the bulls and bears like
34:21
Speaker 1: gold in this environment. Gold investors will always find compelling
34:25
Speaker 1: reasons to buy gold under any conditions, including today's conditions.
34:30
Speaker 1: I doubt there's a consensus as to what gold will
34:32
Speaker 1: do in a year, is there?
34:34
Speaker 2: I mean, a lot of people in the business are
34:36
Speaker 2: making predictions of what the gold price is going to do.
34:38
Speaker 2: And at the moment, James, the gold price is hovering
34:41
Speaker 2: around about $ 2, 600, $ 2, 700 an ounce. I've seen some forecasts
34:45
Speaker 2: from some leading banks who have very smart analysts, way
34:48
Speaker 2: smarter than me, looking at, and they've got models of
34:51
Speaker 2: how they have their price forecast, looking as high as
34:54
Speaker 2: close to $ 3, 000 in terms of per ounce on a
34:57
Speaker 2: US dollar basis. I think because of this, there's a
35:00
Speaker 2: lot of tailwinds within the demand for the precious yellow metal.
35:04
Speaker 2: If you are worried about raising geopolitical tension, gold is
35:07
Speaker 2: naturally that safe haven. When Trump did initially come into power,
35:11
Speaker 2: we did see a little bit of a sell-off in
35:13
Speaker 2: gold It was a rising US dollar. People were a
35:16
Speaker 2: little bit more confident. But there could be still some
35:19
Speaker 2: ongoing geopolitical tensions. I know there's been a bit of
35:22
Speaker 2: a ceasefire, at least promised within the Middle East. But
35:26
Speaker 2: who knows around ongoing tensions that's going to happen. And
35:28
Speaker 2: that bodes quite well with the gold price. In terms
35:31
Speaker 2: of inflation being put back in the genie bottle, who
35:34
Speaker 2: knows whether we may get a reflationary trade. Everyone is
35:37
Speaker 2: talking about disinflation and we're getting close to that target
35:40
Speaker 2: band where most economies want inflation to be. But if
35:43
Speaker 2: there is a bit of inflationary surprise to the upside,
35:47
Speaker 2: gold is a proven commodity to provide that hedge against inflation.
35:53
Speaker 2: And Trump's policies may be inflationary. There could be more
35:57
Speaker 2: from a fiscal deficit perspective. People worried about how much
36:00
Speaker 2: debt is involved in the global economy. There still could
36:04
Speaker 2: be a lot of tailwinds for gold. And if rates
36:07
Speaker 2: do continue to fall and real yields continue to fall,
36:10
Speaker 2: that also bodes well for the gold price. So overall,
36:13
Speaker 2: plenty of tailwinds for the precious yellow metal. Very important
36:16
Speaker 2: part of clients' investment portfolios, particularly as a defensive hedge,
36:20
Speaker 2: because I always say that if gold is the worst
36:22
Speaker 2: performing asset in your portfolio, it means the rest is
36:25
Speaker 2: doing well.
36:25
Speaker 1: It means it was a good year. Assuming you have
36:28
Speaker 1: a diversified portfolio.
36:30
Speaker 2: Exactly. This year has been different where gold has performed
36:32
Speaker 2: exceptionally well in terms of relative returns to the broader market.
36:36
Speaker 1: The point you're making is it performed very well. So
36:39
Speaker 1: did everything else. It was coronated. which might be a
36:43
Speaker 1: worry sometimes.
36:45
Speaker 2: Normally, you have different correlations within gold and other asset
36:47
Speaker 2: classes over the long term. But this year, there's been
36:50
Speaker 2: different drivers. You've seen major demand from central banks. You've
36:53
Speaker 2: seen flows coming back into ETS for gold. People are
36:57
Speaker 2: wanting that as a safe haven. You're seeing strong demand
37:00
Speaker 2: from emerging economies because gold also has that industrial application.
37:04
Speaker 2: It's got the jewelry application as well. We've seen India's
37:06
Speaker 2: stockpile leading into the celebratory season as well. But overall,
37:10
Speaker 2: great diversified to have in your portfolio. Yes, it has
37:13
Speaker 2: performed quite well, but it's not meant to be the
37:15
Speaker 2: return driver. It's meant to be the defensive cushion you
37:18
Speaker 2: have in your portfolio when everything else doesn't perform well.
37:22
Speaker 1: Well, that was a terrific round the world with Mark
37:25
Speaker 1: Jokum in 44 minutes, as it turned out. Terrific, Mark Jokum,
37:30
Speaker 1: GlobalX ETFs Investment Strategist. Thanks very much for coming on
37:34
Speaker 1: the show.
37:35
Speaker 2: Thanks for having me, James.
37:36
Speaker 1: Well, I look forward to having you again on the
37:38
Speaker 1: show across 2035, where we will return to see how
37:43
Speaker 1: some of these consensus predictions turned out over the year.
37:46
Speaker 1: Thanks very much, everybody, for listening. Keep those emails rolling.
37:49
Speaker 1: Love to have some correspondence from you. TheMoneyPuzzleAtTheAustralian.com.au. Today's show
37:55
Speaker 1: was produced by Leah Samoglou. Talk to you soon.
38:10
Speaker 2: Thank you.