Latest / ausbiz a.m / 31.08.26 with David Lane, Focus Partners
Transcript
- Andrew: Good morning and welcome to your morning wrap from Osbys. It is Monday, August the thirty first, and we're expecting a negative start to the week on ⁓ with ⁓ on the local market ASX futures down around four tenths of a cent. In a moment, I'll preview the day ahead with David Lane first, though. Quick wrap of where global markets finished on Friday, and US bond yields and the US dollar rose sharply in response to Fed share Kevin Walsh's hawkish speech at Jackson Hole. He said ⁓ recent ⁓ better than expected inflation readings do not suggest that underlying trends have meaningfully improved inflation. He's said is running above ⁓ the two percent target. So the Fed's predominant focus he said is ⁓ should be on prices, suggesting perhaps there will be a need to hike rates imminently. That did weigh on risk assets. Well, in Wall Street, the SP ⁓ finished about three-tenths percent lower than Nasdaq lost half percent, ⁓ led by the chipmakers, Nvidia losing around four and a half percent. Among the commodities, Brent crude around eighty eight dollars a barrel. Gold dropped off the back of those comments, ⁓ currently around four thousand five hundred and thirty dollars an ounce. Bitcoin currently at seventy eight thousand, that fell. And the Aussie at seventy one and a half US cents. Well let's get across those market moves. David Lane joining us from Focus Partners Australia. David, good morning. David Lane: Morning Andrew, great to be here. Andrew: So new week, ⁓ pretty much at the end of reporting season, but let's first start with what we saw on Wall Street and those comments from ⁓ from Kevin Walsh. ⁓ certainly market perceived them as pretty hawkish and perhaps a rate hike is ahead. David Lane: Yes, that certainly seems to be the case, Andrew. ⁓ Kevin Walsh obviously hinting that ⁓ that rates could could rise and then that was justified by a number of other ⁓ people commenting at the Jackson Hole Symposium, ⁓ Cleveland's Beth Hammock was fairly blunt and said, Now is the time to act. ⁓ so many market analysts are now pricing in a a rate hike in the US. ⁓ they're not actually saying it will happen imminently though. a lot of the the analysts are pricing that in for around December this year. So certainly a a nervous time for the US markets and and as we've seen over the last couple of weeks, the the bond markets are are really sort of indicating that that debt is high, interest rates are high and that it's time to be cautious. ⁓ but overall we've actually seen a a pretty resilient stock market other than on Friday night. Andrew: Well indeed. What what does it mean though for risk assets going forward, do you think, David, both here in the States, with the likelihood that there will be more rate hikes? David Lane: ⁓ certainly a very cautious time and I think that ⁓ yeah we are at record highs or fairly close to record highs, particularly in the US. ⁓ and as I said, the the US markets have been, yeah, reasonably buoyant and reasonably ⁓ bullish, but it's certainly coming in towards the the ⁓ the latter part of the year I think that ⁓ we will be a lot more cautious. the the bond rates obviously have a a big impact on ⁓ US government debt, but as we've been seeing, corporate debt has been rising in the US as well. And particularly some of those hyperscalers and the the build out of AI ⁓ is being debt funded as well. So the cost of capital is getting a lot higher. So yeah, certainly ⁓ many, many areas where we need to be a little bit more cautious. Andrew: Let's turn to reporting season locally and then David, ⁓ look last day of August it's pretty much done, just a couple of laggards to report today. ⁓ overall, what's your assessment been? David Lane: Yeah, overall it was quite a reasonable reporting season. ⁓ fairly evenly spread in in terms of the the beats in line and and misses, about a third of of each. But yeah, I think overall the earnings growth was around eleven percent across the market and the highlight was probably the the resource stocks where we saw that ⁓ you know, the fact that Australia does have a very big mining sector has helped to To hold us up fairly well. A bit of caution around the consumer and and the the fact that we've seen higher interest rates and higher inflation for a long time is starting to to bite at the the consumer. And then we've also seen the impact of the budget and the the fact that the banks are are saying that mortgage applications and in investment loan applications are down significantly and certainly the Australian consumer is becoming a little bit more cautious as well. Andrew: Well, you talk about resources. I mean, that really has all been about copper, hasn't it? We've seen that from results such as BHP, South Thirty Two, Rio. ⁓ with so many of those companies, I mean take a look at BHP, most of its ⁓ profit now actually coming from from copper. ⁓ does that have much more to run, David, in your view, given I guess ⁓ how the AI thematic is playing out, the need ⁓ to build data centers and ⁓ build out that broader infrastructure and copper is such an integral part of that. David Lane: Yeah, I think that certainly is the case. That it is a ⁓ it has been a positive theme short term, but I think longer term it it will continue to be a a positive theme there. We've seen the the increase in the copper price, which has helped, but then also the demand for copper. ⁓ and certainly as far as BHP is concerned, they're doubling down on on the copper ⁓ theme. As you said, it's the first time it's outstripped iron ore. ⁓ BHP are very bullish about that and and looking at ⁓ further growth in in copper and broadly that that electric electrification of the world will continue. We've seen the ⁓ the hyperscalers commit around eight hundred billion dollars in terms of the ⁓ the build out and that will continue over the next three or four years, if not longer, as far as the data centres are concerned. So Absolutely, that is a continu continuing long term theme. ⁓ the other area of the commodity cycle that we've seen as being a a positive ⁓ as far as results were concerned were the ⁓ the gold miners, that the gold price continues to be relatively strong. And we've actually seen in the last month or two that the gold price has ⁓ rallied off ⁓ off a a bit of a a short term correction, but seems to be ⁓ you know, on the on the uptrend as well. Andrew: Are you looking to add gold stocks to your portfolio? David Lane: Well, not necessarily at this point in time. We've seen that ⁓ Northern Star had a really good result. ⁓ many of the the gold miners are trading, you know, reasonably well, not overly cheap at at this point in time. So yeah, I think the view for the gold miners is that ⁓ you know you continue to hold many of those. They're they're good quality companies. It's likely that we see a little bit more corporate activity in that space. There there certainly seems to be a lot of interest in ⁓ in miners. ⁓ in as Australian miners are are high quality miners. So yeah, I think it's a it's a a theme that we we like medium to long term, but not necessarily adding to existing gold miners. Andrew: David, ⁓ excuse me, elsewhere, what what impressed for you? I guess particularly if you take a look at the in the healthcare sector, which I mean, we know the pressure it's been under. What what did you make of some of those key results? David Lane: Yeah, well we've certainly seen that the the healthcare sector was a ⁓ a standout, I suppose, as far as the the share price movements were concerned. ⁓ CSL had a massive improvement as as far as share price price is concerned, but it was a bit of a curious result because they wrote off ⁓ billions of dollars ⁓ and you know, had a a massive loss. So, you know, th the the market was saying, well We think that CSL has seen the worst of it and that we're now looking for an improvement over the next couple of years. So, yeah, that was an outlier there. But you we have actually seen a number of the other healthcare stocks perform very well. Prometicus had a good result. We've seen some share price improvements ⁓ from Cochlear as well. ⁓ so I think that sector is one that's been unloved for quite some time. And it value investors are starting to look towards the the healthcare sector as a an improving theme. Andrew: And David, what's disappointed? David Lane: Probably the ⁓ consumer discretionary side of the market and ⁓ the the fact that we are seeing Australians becoming a lot more conscious about the cost of living, where they're spending their money and ⁓ being a lot more cognizant of of you know the the the cost of life. So we've actually seen ⁓ some of the retailers come off quite a bit. JB Hi Fi was a a disappointing result. Interestingly, in JB HiFi's result, they spoke about the fact that memory and data is costing a lot more, so that ⁓ customers are downgrading their their purchases of laptops because of the the cost of the the memory. ⁓ so it's that that ⁓ AI theme is flowing through into the consumer as well. And then we've also seen the impact of higher unemployment. So Seek actually came through with a a pretty poor result. ⁓ they had a a statutory loss of three hundred and seven million and ⁓ had cautious guidance for financial year twenty seven. So it was a a poor result and ⁓ you know the outlook for for Seek is a little bit more more clouded than it was previously. Andrew: So, ⁓ in retrospect, are you adjusting your portfolio in re in respect to what you've heard over the course of reporting season? David Lane: Not necessarily in the short term because we're now w now that reporting season is finished, we're coming into dividend season. So shareholders who've been in in the companies will start to get their dividends through over the the coming months. I think that we're probably a little bit more positive about the resource theme than prior to reporting season. ⁓ so I think, you know, maintaining those positions will be will be ⁓ the thing to do and probably looking a little bit more ⁓ Keenly at ⁓ at the the banking positions, because obviously a lot of investors hold high levels of of banks in their portfolios. Whether or not that should actually be the case, ⁓ could we'll be adjusting some of the the weightings there and reducing the the weightings in the banks because ⁓ certainly the the outlook from many of the ⁓ the banking stocks has been ⁓ cautious going forward. So that could well be an adjustment that we look look for over the coming months. Andrew: Well, David, great to get your assessment of what you've seen over the past month. ⁓ have a great week ahead. Thanks for joining us. David Lane: My pleasure. Thanks, Andrew. Andrew: And that is your Osby's morning wrap. Hope you have a great day. I'm Andrew Gagan. Thanks for listening.