Latest / ausbiz a.m / 14.10.26 Annabelle Miller, ECP Asset Management
Transcript
- Andrew: Good morning and welcome to your morning wrap from Ozbiz. It is Wednesday, October the fourteenth, and a negative start expected on the local market this morning. ASX futures are down around three-tenths of a percent. In a moment, we'll preview the day ahead with Annabelle Miller. First, though, taking a look at global markets, experienced a rotation out of tech and semiconductor stocks and into defensive and value sectors. That shift driven by deep declines in global chipmakers. In fact, yesterday we saw South Korea's cost be tumble more than five percent, led by those Key semi-stocks and major US banks, they officially kicked off the third quarter corporate earnings season. Goldman Sachs, City, Wells Fogo, they bet estimates, but JP Morgan Chase posting a rare miss. The Dow added around six tenths to close at a three-week high, the SP 500 dipping a fraction, the Nasdaq losing about three-tenths percent. And those bond yields remain stuck near multi-decade highs, the US 10-year Treasury yield around 5.22%. Ren crude around 106 US a barrel following reports of renewed Houssi missile attacks on energy infrastructure in Saudi Arabia. Gold's around four thousand one hundred and sixty dollars an ounce, and Bitcoin trading above eighty three thousand, the Aussie dollar at sixty nine point eight five US cents. Well let's get across those market moves now and what to look at. Annabel Miller joining us from ECP Asset Management. Annabelle, good morning. Annabelle: Good morning, Andrew. Andrew: So let's start on Wall Street. anticipation obviously with third quarter earnings season kicking off with the banks as they normally lead. what did you make of those results? Annabelle: listen, it was a bit of a mixed bag. the the bellwether of the sector really is JP Morgan and and they missed quarterly consensus estimates on the fixed income currencies and commodities side of things. And they did see an uptick in credit loss provisions. but management did raise full year net interest income guidance, which helped shares recover those initial pre market losses. Andrew: So well while we're at it I guess well more do your broader expectations for earnings season. I mean there are high expectations built in. Do you think it's gonna deliver? Annabelle: listen, it it is definitely a quarter to watch, and I can't make any predictions thus far. the bar's high and I'm I'm very cautious heading into earnings season. I do think that when you look underneath the surface of the market, 430 of the 500 SP 500 stocks are in a bear market. So it's really a handful of those larger caps that are holding up the index. And that's probably setting us up for a potential correction but it remains to be seen the strength in these large names has been profound. Andrew: are we starting to see those cracks now? Obviously, I mentioned what happened overnight. We have seen that rotation out of tech and semiconductor stocks. You look at what happened in Korea yesterday. What do you make of those moves? Annabelle: Listen, the The South Korean stock market is actually down thirty-five percent from its high. And so, you know, if you were to sort of extrapolate that, that would be a very good leading indicator as to a potential rotation, the early stages of rotation out of some of the semis that have run so hard. I'm watching it very carefully. the the re one of the reasons why the South Korean market. Market was down so much. It was really a resurgent of this narrative around the threat of Chinese competition. So over the weekend China's leading memory company, CXMT, announced a major technological breakthrough in its DRAM chip architecture. And of course, you know, being a memory company, That poses a particular threat to those South Korean giants, SK Heinex and Samsung, which are very large constituents of that index. So that's what we're seeing there. it wasn't actually helped by comments Andrew: Yeah. Annabelle: from the Broadcom CEO, Hok Tan, which he compared AI market speculation to a casino and he warned that massive debt funded infrastructure spending will face severe financing constraints. So, you know, a key a key cheerleader for this whole AI infrastructure build-out was kind of making some remarks which were not well received by the market. Andrew: So Annabelle, w what what are the ways you see us playing the semi trade at the moment? Annabelle: Well, we have favoured T SMC just because of the quality. However, at this stage of the cycle you have to be looking for laggards. and we we're looking at companies like ST Micro where, you know, they're coming out of a s a very deep cyclical inventory cycle in their core industrial and automotive business. But at the other end of That spectrum. They've also got several key drivers of growth relating to SpaceX and the low Earth orbit satellites that are being launched. So they've basically got a monopoly position providing some of the key semiconductors into those pieces of equipment. And then the other element of that is robotics and humanoid robots. There's a an awful lot of microcontroller components which ST micro benefits. of you know specializes in that will go into those humanoid robots over time. And so you know we're looking at a cyclical recovery plus several growth drivers that will which are not really being reflected in the current valuation or partially discounted I would say. Andrew: Well meanwhile, I mean obviously that AI build out continues, particularly when we're seeing what's going on with with data centers, and that requires huge amounts of resources too, of course. given that, and you know there's a focus on obviously water, energy more broadly, what are you looking at as far as potential in those infrastructure plays? Annabelle: Yeah, it's it's an interesting one. We we've been doing some work on potentially transformers. So a lot of the transformer companies and the companies that provide transmission cables relating to, you know, connecting these data centers to the grid, they're interesting companies because they have very long order backlogs. So we're looking at companies like Prissimion, which is an Italian company, and H D Hyundai Electric, which is a a South Korean company, and their order books extend to beyond twenty thirty, which we find very attractive. So on pullbacks they've got good visibility into their earnings profile. And often their contracts are linked to inflation and they have a number of clauses which enable them to adjust the cost base and pass through the inflation to the customer. So they're kind of insulated on both the cost side of things and they have good revenue visibility. And so when you're thinking about the cycle and you know how it looks and and and shapes, we're gonna go through periods where you get pretty pretty big drawdowns but the longer term story is still intact and so you buy companies like that as maybe a way to you know as a through the cycle kind of position so to speak. Andrew: So Annabelle, what opportunities do you see on the local market then, particularly that AI play? Now, I guess, you know, we've got to take a look at Fermos and the fallout from that failed float last week. Annabelle: Mm-hmm. Andrew: interested to get your view on what happened there and whether perhaps that indicates that the market here is more risk averse. Annabelle: Yeah, it's an interesting a setup. I I do believe the deal was very poorly structured was the at the first instance. There was very poor communication regarding you know, the issuance of information and making it, you know, widely available. you know, when you dug a bit deeper into the the details that were released, it appeared like it was a bit of a start up. there was not much in the way of an actual business compared to the valuation they were seeing. I think they were they had made, you know, maybe fifty million or so of revenue, but they were seeking, you know, a a a very steep valuation of, you know, bil you know, tens of billions of dollars. And th in the market's mind, you know, a startup that had initially, you know, raised money at a fifteen billion dollar valuation just a few months ago and then was seeking to, you know, double that or more on IPO with little in the way of incremental revenue in the meantime, it was a bit of a stretch. You're asking investors to take on a lot of risk. and then when you looked at the the potential for insiders to sell on day one, there was an awful lot of issuance and potential selling that was going to happen on day one. And it it was a a bit of a sort of red flag For us. And then you add on things like extreme customer concentration. Then the IPO price got cut and cut again. There was a massive pre-IPO shareholder overhang, and then you've got the extreme lines on NVIDIA. So there are a number of red flags where they just added on one on top of the other, and it it was very hard to get across the line. Andrew: So what does that mean for the local market? Do think perhaps companies perhaps looking to list in that space are gonna be more gun shy now, given that reaction? Annabelle: I think track record goes a long way in terms of getting people across the lines. I don't want to necessarily rule out a company that is more mature in the area coming to market. However, I do think that these kinds of companies, the Neo Clouds and the like, are better suited to a NASDAQ listing just because the shareholders are the shareholder base in America has a lot more knowledge about how to value these businesses. In Australia, there's not many sort of even you know technology companies within this area. There's Next DC and Megaport and that's probably about it. So the the pool of relative sort of peers to measure any potential company gains is very limited. you know and it's a chicken and an egg problem for us. You know, it would be nice to see some kind of Of these AI-centric businesses eventually come to the ASX, but it requires a lot of investor education, I believe. Andrew: Well Annabelle, great to get your view of what you're seeing on the market at the moment, both here and in the States. thanks so much for joining us some ECP Asset Management. Annabelle: Thanks, Andrew. Andrew: And that is your Osby's morning wrap. Hope you have a great day. I'm Andrew Gagan. Thanks for listening.