Latest / ausbiz a.m / 15.10.26 Andrew Wielandt, DP Wealth Advisory
Transcript
- Andrew: Good morning. Welcome to your morning wrap from Ozbiz. It is Thursday, October the fifteenth, and the local market is expected to open lower this morning. ASX futures down around three-tenths of percent. AMW: Thank you. Andrew: In a moment, we'll preview the day ahead with Andrew Violet. First, though, global markets, Wall Street, worst day since June. Hotter than expected US consumer inflation data, which triggered a spike in treasury yields and renewed fears of further rate hikes by the Fed. That headline number there. Rose to 3.7% annually versus 3.6% expected, driven by those skyrocketing fuel and energy costs. And the downturn led by a massive sell-off in AI and semiconductor stocks, core weave plunging 15%. Dell also hit, broken downgrade, didn't help, that was down 12%. So the Nasdaq ended up down 2%, the S P losing one and a third percent, the Dow lost half a percent. And that US 10-year treasury will surge six basis points. it's heading to five point three percent. Brent crude moved higher, 106 US dollars a barrel. Gold suffered from the prospect of higher US rates, one and a half percent lower to below four thousand one hundred an ounce. Bitcoin also hit down to around eighty-one and a half thousand, and the Aussie dollar slipped to sixty-nine point AMW: you Andrew: seven. Well, joining us today across the market moves, Andrew Arlen from DP Wealth Advisory. Andrew, good morning. AMW: Good morning, Andrew, but I don't feel like it's a good morning. I feel like I'm the Grinch, you know, like Andrew: No. Yeah, it it is AMW: we didn't plan this very well, did we? Andrew: No, but well, yeah, look we know that inflation is plaguing developed economies around the world, so and obviously central banks are in that fight against it. So and so it goes for the US as well. But that those market moves were dramatic and you know, we have seen cracks in the in the tech trade, but this was pretty much a a tech route, wasn't it? AMW: Yeah, look, as to your point, that inflation data that came out overnight, was unhelpful, if I can coin it that way, 3.7 per cent above consensus of 3.6 per cent. And surprise, surprise, fuel was the main driver, no pun intended, of that sort of miss or beat, depending upon how you look at it. And in particular, also going to be incredibly unhelpful for the Republican Party coming into those midterm elections, which are now just around the corner. But yeah, certainly higher inflation, therefore higher bond yields. know, the US 10-year surging there. US 2-year Treasury bond was also surging overnight as well. all feeding into sort of that AI trade. And that's why we saw so much pain on the tech space overnight. And of course, the other thing which you didn't mention is the VIX. And I'm not talking about Andrew: Mm. AMW: the stuff that you rub on your chest on an evening. I know it's a family-friendly show, so we won't go too much into that, but the VIX. Up to 17, I think, or nearly 18. So another word sort of rule of thumb is... the market expecting four to five percent volatility across sort of equity indices in the next 30 days or so. October proving to be as volatile as usual. Andrew: Yeah, interesting, isn't it? I mean you mentioned that seasonality. We've seen that September, October, it is playing out yet again and obviously a fear grouping the market, but also I guess it plays into those questions increasingly that investors have about the AI trade and just how far it's run. AMW: Yeah, and again, I apologise. Some people may not have their Andrew Bingo card out this morning, but you and I have spoken many times relating to this 1.2 trillion, 12 zeros investments that's going into AI. So, know, assuming that people want a 15 to 20 % return on that investment, you know, we're looking at $150, $200 billion of EBIT that, you know, is expected to be returned per annum. And I'm not really sure that these companies are necessarily going to see that return. and I and Henry Jennings were talking yesterday around businesses might be spending an AI, but how many people do know, civilians, the average bear who's using their favorite large language model on a daily basis just at home? I don't think there's that many. My back of the envelope might be 10, 20 % if I'm looking at my clients, but there's a strong subset that is going, this is all too hard and I don't want to do that. So coming back to your point, a lot of money going in, is there a return going to come out at the other end? And the cost of funding it, of course, Andrew, is the other issue with surging bond yields and governments giving a quote unquote, risk-free return of five to 6%. These AI guys and girls are... having to get seven, eight, nine percent to try and get this debt funding away, like at some stage that economics starts breaking and potentially that's what we're seeing here at the moment. Andrew: Well what have you seen with well let's take this from an ETF perspective, given you are the guy, Andrew. with the likes of NDQ and so on that follow the the you know the Nasdaq index. what what are the flows been like in those as people try and get on board the AI trade? AMW: Flies are still really, if we're talking ETIs more broadly to begin with, A1, Andrew, know, flies are still really strong into ETFs. Six and a half billion went in again last month. So we're absolutely knocking on the door of 400 billion by year end, calendar year end, and 500, half a trillion dollars beckoning by the end of 2027. But yeah, the AI trade and the NASDAQ in particular still remains strong. I don't have the exact figures to hand and I don't have my LLM fingers ready to go. I anecdotally and certainly what I've seen in previous months, there's still plenty of money going in. And we've seen previously whereby when there's been dips like this, it's actually been retail that's actually been in there, propping it up, that's been in there buying it. And that will be the real test for this market if and when we have a decent crunch, whereby if the market legs down again after retail's been in there supporting it. And let's be clear, we're not really there yet. I'm talking like a 10 % drawdown. If we have a 10 % drawdown, retail's in there buying and then it legs down another 10%, that's going to be the real test. Because then, you know, if the mums and dads stop buying and you've got the instos potentially shorting it, that's where we're going to have some fun. But at this stage, flows are still strong. People are stronger for longer. Yeah, the faith is still there, Andrew, the faith is still Andrew: Well, let's then turn to the local market, Andrew, and clearly the Aussie market has underperformed what we've seen, particularly on Wall Street, because we don't have those big tech AI related companies. But it maybe that's to our benefit, certainly on a day like today. I mean, how are you viewing the local market? AMW: Well, market will be under pressure. Obviously, as you spoke about before, the SPI indicating we're going to have a softer start, but only 0.3 % downs relative to, think, what did you say, the Nasdaq down 1.9%. You're right. It's probably not a bad place to be hiding in Australia today. But equally so, we sort of bemoan the concentration risk of the US markets around tech. Well, know, pot-kettle black. Did someone say banks and resources here? those two subsectors are well over 50 % of the index here. you know, we have to be careful as to that concentration risk piece and to the banks piece. I mean, we saw CBA off 2 % yesterday after their AGM and, you know, the chair refusing to rule out job losses around AI, Matt Comben, the CEO talking about a tough rest of the year for the Australian economy. So probably resources. Maybe the only place to hide Andrew. Andrew: Well, a resources sector certainly has been doing well, particularly driven by those copper related stocks. And once again, that goes back to that AI build out. but you know the likes of BHP and Rio. and now of course we've got a new player on the scene, Andrew, in the form of Glencore. What do you what do you make of its entrance on the local market? AMW: It's almost like we planned that segue, Andrew. It's almost like we planned Andrew: Yeah. AMW: it. Yeah, certainly, Glencore listing yesterday here in Australia, a secondary listing. think it's primary listing from memory. Where is their primary landing? It's in Andrew: Bunch. AMW: Europe, London, thank you. And of course, a secondary listing in Joberg as well. And yeah, it's a really interesting move, know, extensively. they're saying that they recognise that the Australian market, indices around the world are becoming niche markets, to the point before around the NASDAQ is for tech, Singapore for REITs and now here in Australia, our speciality is obviously resources. And I was reading this morning that apparently we're becoming a gaming hub as well. I'll have to explore that a little bit more. So it certainly makes sense that... Glencore actually wants to come to Australia to sort of look at that sort of big pool of money that we have our super money. again, looking at some of the research around how these secondary listings have performed sort of two, three years afterwards, one of the companies referenced was Capstone, Capstone Copper, and its share of local shareholders sort of doubled, nearly tripled over three years. So certainly there is an appeal here in Australia. We do understand resources. But as you and I and Henry were talking about yesterday, Glencore's got some pretty stiff competition. It's got BHP that it's competing against. It's got Rio that it's competing against as well. But it was a successful start and all other things being equal, it should perform reasonably well as in from Andrew: Hm. AMW: a flow point of view. and to your broader comment relating to copper decarbonisation electrification, it's certainly come on at the right time. Andrew: And if you don't want to pick one stock, let's put your ETF pack hat back on then, Andrew. what what's a good way of of playing that, particularly, you know, as you're looking to get that proxy if you like for for the AI player? AMW: Yeah, and just briefly before I, it's early in the morning here in Queensland, Andrew, so you'll just have to bear with me if I jump around for a moment. Glencore won't be included in the passive flows for at least six months because it won't have met the liquidity piece as such, but certainly maybe as early as March next year, it may be included in some sort of various indices, which we've been seeing some passive money supported. So to your question, to your point around the ETF question. I mean, certainly there's a couple of material, if we're talking about materials, there's a couple of material focused ETS. MVR would be one, QRE would be another. They both sort of buy those sort of materials subindex. And that's to me, rather than trying to work out is BHP better than Rio, better than FMG, that's certainly how I have been playing it. In that broader AI space though, Again, you know, it is actually hard to beat the NASDAQ, you know, that sort of broad-based or, you know, if you're sort of saying, look, maybe one step away from doing that is simply to buy like an S &P 500 ETF, you know, like an IVV or an IHVV if you want to have the hedging in place, V500, of course, from Vanguard as a new player in that space as well. And that way you're getting exposure to the top 500 companies, albeit, you know, 30, 40 % of that is techs. And there are a couple of ways that you can play either the resource play or the tech play. Andrew: Andrew, great to get across your perspective as usual. look, I hope you make the most of what could be a bit of a challenging day on the local market. Thanks so much for joining us from DP Wealth Advisory. AMW: Thank you. And of course, Andrew, I'll chat with you in about three hours for those who want, you can't have enough, Andrew. Andrew: Well that's right. do we'll get get you on the telly as well. Andrew, have a good one, thanks. And that is AMW: Thank you. Andrew: your Osbiz morning wrap. Hope you have a great day. I'm Andrew Gagan. Thanks for listening.