Latest / Best of Business / Brendan Larsen: Milford Asset Management expert on what the demand for shares and bonds means for investors

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Brendan Larsen: Milford Asset Management expert on what the demand for shares and bonds means for investors · Best of Business

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  Speaker 1: You're listening to a podcast from news Talk said be
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  Speaker 1: Heather do for Seela either.
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  Speaker 2: I don't mind following your lead on Mikey Sherman, But
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  Speaker 2: surely she was biased at least, which a news reporter
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  Speaker 2: shouldn't be. I mean, yes, but to be fair, most
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  Speaker 2: of the press gallery and the wider news media is biased.
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  Speaker 2: Everybody leans left, Like ninety nine percent of the press
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  Speaker 2: gallery leans left right, and it's so normal there you
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  Speaker 2: don't even notice it anymore when you're in there. I think,
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  Speaker 2: if you'll, I think Mikey Sherman was not that bad
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  Speaker 2: on the scale of like being you know, leaning right
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  Speaker 2: to leaning left, which just seems like kind of tilting
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  Speaker 2: towards the left. But I think she actually quite centrist.
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  Speaker 2: I mean, she had nothing on Benedict Collins, who is
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  Speaker 2: still there. He made her look like a right winger.
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  Speaker 2: Seventeen past six, Brendan Lass and Milford Asset Management is
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  Speaker 2: with us. Hello, Brendan, Okay, listen. There's been a lot
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  Speaker 2: of focus Brendan this year, obviously on the demand for
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  Speaker 2: shares and bonds. Who's buying where the money is coming?
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  Speaker 2: From and so on. But you've been looking at the
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  Speaker 2: other side of it, which is the supply. What are
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  Speaker 2: you seeing here?
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  Speaker 3: Yeah, look, it's fair to say it's one of the
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  Speaker 3: more underappreciated shifts and markets at the moment, and something
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  Speaker 3: investors really haven't had to worry about for some time.
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  Speaker 3: For the best part of thirty years, large US companies
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  Speaker 3: have brought back more of their shares than they've issued,
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  Speaker 3: and so the number of shares available to investors has
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  Speaker 3: actually been shrinking steadily over time, and that's really underpinned
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  Speaker 3: market performance. Some bank estimates are now suggesting though, that
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  Speaker 3: twenty twenty six could be the first year in almost
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  Speaker 3: three decades with AT reverses, and the net supply of
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  Speaker 3: shares is actually increasing rather than decreasing. Equally for many
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  Speaker 3: of these companies, they're now borrowing enormous amounts of money
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  Speaker 3: in the debt market to fund their AI capex, and
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  Speaker 3: so the supply of both shares and debt is rising
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  Speaker 3: at the same time, which is really quite unusual.
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  Speaker 2: What is driving the increase in the supply of shares.
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  Speaker 3: There's two things, really, So the first is that the
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  Speaker 3: market for new listings has reopened in a fairly dramatic way.
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  Speaker 3: So we've had SpaceX already list, and the market's now
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  Speaker 3: way on open AI and anthropic IPOs, and so these
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  Speaker 3: are the two large heavyweights and large language models. The
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  Speaker 3: second and probably less discussed, is that big listed technology
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  Speaker 3: companies have started selling their own shares. And so these
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  Speaker 3: are companies that spent the last decade really buying their
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  Speaker 3: own stock back, but they're now on the other side
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  Speaker 3: of that, And I think that's worth sort of reflecting
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  Speaker 3: on because if a management team is willing to sell
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  Speaker 3: shares themselves instead of buying them back, it tells you
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  Speaker 3: something about how they view their own valuations, and historically
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  Speaker 3: that isn't the most encouraging signal. But in saying that,
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  Speaker 3: it's worth sort of thinking about why they're doing that.
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  Speaker 3: It's not that they're returning cash to shareholders because they've
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  Speaker 3: got no other sort of avenues to invest that in.
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  Speaker 3: They've got big projects where they believe they'll earn high returns,
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  Speaker 3: and whether that proves correct as the real debate.
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  Speaker 2: You also mentioned that borrowing heavily. How large has that become.
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  Speaker 3: Yeah, it's a good question. I think the scale has
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  Speaker 3: moved a lot faster than people appreciate between them. The
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  Speaker 3: largest technology companies are spending around seven hundred billion this
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  Speaker 3: year AI capex, and that's probably going to surpass sort
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  Speaker 3: of a trillion dollars next year. So that's approaching the
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  Speaker 3: total cash these businesses generate and probably exceeds in the
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  Speaker 3: next year or two. And so that difference has to
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  Speaker 3: be borrowed or raised. And so the big technology companies,
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  Speaker 3: data centers, chip makers, they've gone from about four percent
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  Speaker 3: of the investment grade bond market to over six percent
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  Speaker 3: today and if you throw in the utilities and power
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  Speaker 3: suppliers to them, that's around fifteen percent of the investment
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  Speaker 3: grad bond market, so really rivaling some historically large sectors
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  Speaker 3: like banks in that bond market.
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  Speaker 2: Is that starting to cause any strain?
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  Speaker 3: Do you think it is? It is starting to show up,
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  Speaker 3: and what these companies are paying to borrow. So technology
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  Speaker 3: companies used to borrow more cheaply than the rest of
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  Speaker 3: the market, but that isn't the case anymore, and you're
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  Speaker 3: seeing borrowing costs at around twenty year highs. And so
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  Speaker 3: I think that is really the link between what we're
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  Speaker 3: saying borrowing has become so expensive that actually it's cheaper
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  Speaker 3: for some of these companies to issue their own debt,
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  Speaker 3: their own equity instead of debt, and so that is
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  Speaker 3: causing quite a shake up the market.
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  Speaker 2: Yeah, what do you think this means for investors?
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  Speaker 3: Then, well, look, ultimately supply gets absorbed by price, and
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  Speaker 3: so more shares and more debt competing for the same
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  Speaker 3: pool of savings as a headwind, where for the last
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  Speaker 3: decade shrinking supply has been a tailwind. So that alone
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  Speaker 3: doesn't derail markets, but it removes something that has underpinned
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  Speaker 3: the market for many years, and so I do think
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  Speaker 3: it's a big trend to watch it going forward.
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  Speaker 2: Brendan, thanks very much, appreciate it. Brandon Last and Milford
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  Speaker 2: Act Management.
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