Latest / ausbiz a.m / 09.09.26 with James Gerrish, Market Matters
Transcript
- Andrew: Good morning and welcome to your morning wrap from Ozbers. It is Wednesday, September the ninth, and we are expecting the local market to begin positively. ASX futures up around three tenths a percent. In a moment, we'll preview the day ahead with James Gerish. First, though, quick wrap of where global markets finished overnight. Surging oil prices with those geopolitical tensions increasing with Iran saw also rising bond yields, and that led to a a risk-off start to the shortened ⁓ holiday week on ⁓ Wall Street, with all major industries closing lower, the SP down around six tenths, the Nasdaq three tenths percent lower, and the the Dow off close to nine tenths. And there have been more strikes on energy infrastructure in the Middle East with explosions at Iran's ⁓ export hub, Carg Island. That's pushed Brent Crude to its highest level since July, up another two percent to $99 a barrel. Adding to that issue is OPEC's crude oil production tumbled in August as well. James Gerrish: And all that. Andrew: Now gold has weakened further to around four thousand three hundred and fifty dollars an ounce, Bitcoin lower at around seventy eight and a half thousand US, and the Aussie it's close to seventy two point two US cents. Well let's now get across those market moves. Joining us James Gerrish from Market Manners. James, good morning. Yeah, so Middle East oil that's ⁓ remaining a real drag on Cenovit at the moment. James Gerrish: Yeah, it certainly is. So we've obviously been through earnings season in ⁓ the US and then ⁓ FY twenty six earnings in Australia. So we had a lot of company news dominating the ⁓ the wires in the last couple of weeks. ⁓ and now we're back to the macro thematics that are ⁓ really influencing markets. So, you know, higher higher oil prices, ⁓ that's inflationary, that sends interest rates or bond yields higher. Interest rate expectations have been ⁓ changing. So there's now expectations that will tighten here. ⁓ more than was priced in previously. So ⁓ all of those things are not great for markets. I I I'd say that, you know, the equities are holding up pretty well because of earnings being ⁓ pretty robust. But the macro the macro focus now, given we're in this void of ⁓ news flow on the company side is probably going to dominate markets in the near term. Andrew: Yeah, interesting. Obviously in the wake of of reporting season it's ⁓ dividend time. ⁓ what what do you what do you anticipate that ⁓ investors are gonna do with that cash? James Gerrish: Yeah, so that's a that's a good question. ⁓ histori you know, from history, ⁓ we know that a lot of that finds its way back into the market. So but it's probably not straight away. So September is the traditionally one of the weakest months in the equity market. ⁓ we obviously have a lot of large caps here in Australia, go ex dividend, but it's also the same plays out in the US in terms of equity market weakness in September. So generally you get a ⁓ you know a pullback in September. ⁓ early October, ⁓ before November sets up the start of a you know, the potential for a Christmas rally. So ⁓ a lot of dividends going into investor pockets. So dividends have ⁓ been higher throughout this ⁓ FY twenty six earnings season. That's one of the trends that's been obvious. ⁓ so more money in the back of investors pockets should find its way back into the market. So you know I think about the macro, the macro is obviously concerning. We don't know what the you know w the the when the ⁓ conflict in the Middle East is going to end. We've thought it's going to end a number of times, but it hasn't. ⁓ so there's a little bit of trepidation out there. ⁓ we've also got some negative headlines here locally around property prices, ⁓ RBA interest rate moves, etc. So I understand that investors are probably nervous out there, but it's ⁓ you know, reinvesting back into the market does ⁓ bear fruit over the longer term would be my message. Andrew: Yeah, you mentioned property prices, James. Obviously the wealth effect comes into play there if ⁓ if those who own a home are seeing the value of their homes fall and that does come with that backdrop of the prospect of more rate hikes. In fact, we heard from ⁓ RBA Deputy Governor Andrew Houser, who was on ⁓ ABC seven thirty last night talking about those continued upside risks to inflation and ⁓ he's sort of said essentially that the question is whether they ha they have done enough. Clearly the expectations ⁓ that they're gonna have to hike again. James Gerrish: Yeah, well if you you think about the RBA's mandate, it's about full employment and the ⁓ and infl inflation ⁓ within the two to three percent target ban. So ⁓ well property prices are a peripheral thing. They don't feed directly into the RBA's ⁓ mandate. So ⁓ you know, inflation's still too high. ⁓ we get that. ⁓ you know, our expectation probably a month ago was that ⁓ the RBA had enough room to sit on their hands and see how the rest of the year played out from an economic data point of view. So That's probably changed a little bit in the last little while on the back of stronger employment and the str on the back of slightly hotter inflation read the last time we got a number. ⁓ so you know the definitely the you know the risk is for further interest rate hikes ⁓ here in Australia. And that's you may mention the wealth effect. So we all sit here and you know own property and when the pr you know property values go down, we certain we we sort of sort of tighten up the purse strings. We don't have that same liberal spending attitude. ⁓ and I think that's starting to, you know, move through the market. We saw it in some of the consumer discretionary names ⁓ in the reporting season where, you know, from low levels we thought there were probably a lot of negativity was priced in, but that's probably proven a little bit premature. So ⁓ it's certainly a ⁓ something we need to be conscious of. And it's a real ⁓ you know, it is a risk in the market at the moment. ⁓ but we'll just have to see how it plays out. I mean, the RBA's got a pretty challenging task at the moment. Andrew: Just talking about those risks, other risks related to property, private credit, ⁓ James, is that is there a risk of of more of a sort of a contagion effect there given what we're seeing? I mean, that this sort of centers around the collapse of a ⁓ New South Wales ⁓ very large property developer and a number of ⁓ private credit funds that are exposed there. Does that raise further concerns, do you think? James Gerrish: I think brings up a couple of ⁓ issues that we should think about. So normally, you know, in private credits it's very ⁓ focused on specific projects. So the battler project that you're ⁓ making reference to, very complex, very large, ⁓ and and and run ⁓ I guess ⁓ not to the level that it should have been run. So they've come into difficulty. ⁓ but yeah, I th I think from a broader standpoint, I sit back here and and not all private credit is the same. I'll you know, preface that. ⁓ we're talking about property backed private credit here. ⁓ you know, I think there is a case where, you know, if you get a lot of stock coming onto the market, particularly in these ⁓ land developments, then that can put put downward pressure on prices and that impacts the whole sector. So there's definitely a risk there. I think the risks are elevated, ⁓ and I think investors should be pretty cautious in that space, particularly in the property-linked private credit. There's a lot of other private credit that wouldn't be as impacted by this. ⁓ and also it's around, you know, having a understanding that you need to be diversified across it, not have all your eggs in one basket like some people do. ⁓ and ⁓ you know, ⁓ get the you know be be open to what's playing out in private credit. So ⁓ I don't think it's probably as bad as what the media is making it out to be, but it is certainly a risk and it's a risk that we're ⁓ looking at ⁓ from from from from our portfolio perspective for sure. Andrew: So speaking of the portfolio then, James, in the wake of reporting season, have you made any significant changes? James Gerrish: ⁓ not materially. We've trimmed a couple of ⁓ consumer discretionary names. So we've got that a little bit a little bit early in the consumer side. We thought the consumer ⁓ would have been doing better than they have as ⁓ you know, the view around interest rates have have changed a little bit. So reduced ⁓ consumer discretionary stocks. ⁓ and then we've just started trimming a a bit out of the mining sector. I know the mining sector's hot and I think the trends are really positive there over the medium term. ⁓ but a lot of these stocks have run really hard. So ⁓ you know, taking some ⁓ profits, incremental profits in some of the mining ⁓ area of the market, I think is is is the only real thing we've done post reporting, Andrew. Andrew: Well, I mean in particular, you know, we know copper is ⁓ reached another record high. So when you talk about trimming, i i i are you talking about the likes of the HP and Rio? James Gerrish: Yeah, we trimmed BHP yesterday. It probably won't look that good today. I think I'd I'd assume BHP will be higher this morning. Copper was up two percent last night. ⁓ but just trimming over a a bigger overweight stand. So, you know, when you've got a a position that's materially increased, so you know, BHP is up ninety percent on our buy price, ⁓ then trim then then obviously the portfolio, the prevailing weight in the portfolio goes up. So trimming it back to ⁓ lower levels but remaining overweight the sector. So still like I think you know you've got to be active in commodities. I think that's one of the the keys I've learned over the last 20 years, Andrew, that things look really good at a point. ⁓ but if you don't trim them, you're not not not locking in those gains. So you need to just be active around your allocations in commodities, ⁓ even when the backdrop looks really supportive over the medium term, which is certainly our view, particularly around copper. So that would be our major, you know, a top pick in the space. ⁓ but we've got, you know, exposure right across the copper thematic, Freeport, MacMoran over in the US, ⁓ AIC mines in the smaller company space, BHP, South thirty two, Sandfire are all still held in portfolio. So we're well covered there, but you just gotta be trimming in the strength so it gives you some ammunition when things ⁓ don't look as good and stocks pull back as th they inevitably do. Andrew: And James, given where oil prices are going at the moment, how are you playing energy? James Gerrish: ⁓ nothing directly in the ⁓ you know traditional oil companies, ⁓ oil and gas companies. We've got ⁓ coal exposure, ⁓ so that's the way we're we're we're playing it. So ⁓ coal exposure through Whitehaven Coal, New New Hope, and Peabody Energy over in the US. So ⁓ that's the way we're playing energy at the moment. ⁓ and obviously uranium as well. Andrew: I I know Well, I was just gonna say, yeah, I know you've been ⁓ keen on uranium, so you you still exposure there? James Gerrish: Yeah, still got exposure there. So coal and uranium is our two areas that we're ⁓ are our bets in the energy space. I think that you know when you're buying ⁓ oil and gas stocks, you're obviously going to take a a ⁓ a pun on what plays out more so in the Middle East. So, you know, the the ⁓ oil prices, you know, just a shade below a hundred bucks a barrel this morning. ⁓ but that can change pretty quickly on, you know, a post out of ⁓ of Trump and improvement in the Middle East, etc. So That's the risk you've got to be comfortable with when you go into the oil and gas sector at the moment. So to me I think oil prices, you know, at some point and I've been saying it for a while and I've been wrong, this c r this there will be a resolution out of the Middle East and oil prices will fall and that'll be a negative for oil and gas stocks. So I don't know when that will be. ⁓ but it's you know, th th that will happen at some point in the future, Andrew. Andrew: James, ⁓ great to get your perspective of the markets. ⁓ have a good day. Thanks for joining us on Market Matters. And that is your Osbys morning wrap. Hope you have a great day. I'm Andrew Gagan. Thanks for listening. James Gerrish: You too, mate.