Latest / ausbiz a.m / 23.09.26 David Walsh, Sarto Advisory
Transcript
- nadine: Good morning to you. It is the 23rd of September. It is a Wednesday, and there is quite a lot to get across this morning. Now, of course, this is very much a markets and equities focused podcast just to get you going in the morning. We're glad you're here. But it is worthwhile mentioning that we have heard from the US President Donald Trump. He's saying that talks with Iran going well as he addressed the UN General Assembly in New York. But as per usual, he was a bit all over the place saying that he's got a choice to make a deal with Iran or annihilate Iran. So we'll see what goes on with that. But what I can say is with the Saudis looking to, I guess, get oil through ⁓ the Middle East a little easier. We've got oil now trading below $100 per barrel. We also had a slight retreat in yields ⁓ through the overnight period. But perhaps I am burying the lead because we've got a record finish for the Nasdaq, a renewed rally in chipmakers. S P 500 closed relatively flat. The Dow was slightly weaker. but yeah, what a week so far in terms of US equities and that really juiced up AI trade. We've got Anthropic saying they've got a cheaper model of Claude. It's all happening out there. ⁓ We're expecting to see a little bit of a lift for the local market here today. I don't think anything to write home about. Maybe I should ask my guest about it. It's David Walsh. He's joining me from Sarto Advisory. Good morning to you, David. David Walsh: Good morning, Nadine. You did a great job going through all the key points of last night. What nadine: Yeah, well on that, I mean we saw the local market advance slightly yesterday, but underperformance, is that just is that just because we're not, you know, Mecca for AI? David Walsh: Well, I think that's right. And then but we may have a bit of a catch up today. As you noted, the oil price was down, the copper price was up, which has been a key lead for our for our our store ward in BHP. When I looked through the sectors ⁓ from last night's US equity session, materials was the leader. What was also interesting there was that the financial sector was down. We saw JP Morgan falling three percent. There's a relatively high correlation between the direction of that stock price and Macquarie. So it would be interesting to see how that trades today. But you know, it so far it looks like it'll be a positive session in Australia. nadine: Hey, we'll take it. We'll take all of that. ⁓ now again, I don't want to get too far into politics, but we do have the US President Donald Trump and the Chinese president Xi Jinping in Washington. ⁓ there's a current one year trade truce. It expires in November. It's really interesting to me. They're they're having a White House state dinner and Meta's Mark Zuckerberg's gonna be there, and video's Jensen Wang, opening eyes, Sam Altman. I mean, would you like a seat at that table? David Walsh: Exactly. Yeah. Yes. Mm. Yeah. Yeah. Well, it would be fascinating to hear what the conversations were. ⁓ but y you would expect that all the big ⁓ US business leaders were there, especially Apple, who still has quite a dependence there on the supply chain. ⁓ hearing what the what the discussion is around the pace of AI development would be the the key takeaway there. As you noted at the top of the show, there's a lot of talk coming from the lead model makers or the frontier model makers in the US about how do we do the pace, how should we slow the pace down of development and I'm pretty sure there's gonna be no slowdown of development in China. So it'd be interesting to see how they negotiate those sorts of matters. nadine: Yeah. ⁓ when we think about yields, obviously that five percent level, it's not just sort of psychological. It's actually, you know, pretty pretty big number when it comes to bond yields. ⁓ I had a really interesting conversation with Tim Hex from Pendle yesterday and he was just sort of talking about the you know, where we are in the cycle in the AI spend and just how much money that's sort of sucking out of you know, out of markets, out of David Walsh: Yeah. Mm-hmm. Yeah. nadine: out of sovereign bonds, you know, into corporate bonds. It's pretty incredible. How do you as an investor read that and how it's impacting, you know, asset allocation and I suppose ⁓ strategy? David Walsh: Yeah, i it is an interesting substitution effect when you sort of put those options beside each other. You can get a higher yield in then say a Google bond versus a US Treasury and then you have to analyse which is the stronger credit given the state of the US balance sheet and and a balance sheet of Google. It seems crazy to have that that conversation. But the the other key factor there is the ⁓ Japanese government bond yield that's now at the ten year at three percent and they have been such a strong source of capital throughout the world when their bond yields were s at zero and so then repatriating that back home. So it is a really interesting time. in those fixed income credit markets. And for the first time, you know, we we talked about this previously. I know we're we're taking a really close look at some of these yields for first time in a long time because you can get sort of five plus yields. And the markets have had a strong run, as you noted for the start of this week, as there's some sort of comfort around the fact that we're into a something of a short, sharp hiking cycle. normally that's not seen as such positive, but I think there's some relief and everyone had positioned for something worse. But as we get into that hiking cycle, I think there's a strong chance that the economy starts to slow, even on a sort of year-on-year relative basis, and then we could turn around into a cutting cycle this time next year, which would be quite positive for these longer term bonds. So there's a lot to think about there for sure. nadine: Yeah, ⁓ key for strategy. You just reminded me in mentioning Japan that Japan's market is still on holiday today. It'll be interesting to see if it sort of catches up with some of the CPU AI enthusiasm when it comes back online tomorrow. I guess we will just have to wait. It's on holiday for autumnal equinox day. They get a lot of holidays, I feel, in Japan. David Walsh: Yeah. Yeah. Yes. Well, they had to spread them. There there was a there was a concern there a decade ago that they just worked too much and that they they put in some extra holidays in the calendar so that they could ensure that their their all the workers there were taking enough holidays. So they just spread it out nicely. nadine: Yeah. You might be one of those that are lucky enough to have a holiday in October. We at OzBiz will still be working away. I wish we could coordinate it across the country, but ⁓ speaking of the agenda, so today we've got a SP Global Australia Flash PMI for September. We also get them released in Germany, the UK, the US later today. We've got Anthony Albanese attending that UN leaders reception hosted by the US President Donald Trump in New York. We'll see if he gets a word. David Walsh: Ha ha ha. No, that would be good. Mm-hmm. Mm-hmm. Mm-hmm. nadine: In. They're upset with him about so-called censorship because of the social media ban. I have a teenager. Social media ban not entirely effective, but that's a conversation for another day. We've already had a bit of an argy bargy this morning. ⁓ now we don't have ⁓ big data today. We're still waiting for that jobs data to come through tomorrow. Obviously, that will help the RBA form its view, although David Walsh: Sure. Yeah. Mm-hmm. nadine: markets to your point, you know, pricing in a hundred percent chance pretty much of getting a hike next week. ⁓ tomorrow though, David, we also get financial results, so full year results actually coming from Washington H soul Pats. So, you know, the Berkshire Hathaway of Australia, some call it, what will you be looking for? David Walsh: Yeah, ⁓ we we we follow this one closely. It's key part of our client portfolios. we had ⁓ invested in brickworks and sole pats for a long time and as you know they've merged together maybe it was twelve months ago or little bit longer. ⁓ and and when we look back, they had some really strong ⁓ first half results with their net asset value climbing just under fifteen percent. nadine: Mm-hmm. David Walsh: to thirteen point eight billion. So we'll be seeing how that has progressed over the course of the the last six months. They did have really or the highest ever six month ⁓ portfolio turnover in the first half of the year. I think that was about four, four point three billion. so just to see how they're allocating that capital, what else they're doing to move the the parts around of of as you mentioned the you know their Berkshire Hathaway type model, they've got a lot of private and public exposure and so just to see where they're allocating capital and where they're seeing value is a really interesting insight for us. As we ⁓ as we know with this company, excellent management and they've grown their dividend, I think ⁓ it was forty eight cents in the first half, ⁓ which was up nine percent year on year. So we're watching to see what they do do there. So it's ⁓ it's a treasure trove of information from really strong capital allocators. So we will be going nadine: Okay, well maybe we can talk about that next time you're in the studio as well, because it is a core holding for a lot of people and just an interesting company, I think. ⁓ you know, we don't have a lot or really anything like that otherwise. ⁓ can I ask one sneaky question about perhaps not premier investments in particular, because I don't know if you follow it, but I don't know, David, I've had a lot of conversations with people lately about retailers, you know, a lot of retailers being really bottomed out. David Walsh: Sure. Yeah. Sure. Mm-hmm. nadine: You know, when do you start to look at these? Even, you know, considering we've got a couple more interest rate hikes like Lee this year, you know, there will come a time for these retailers, won't there? David Walsh: Yeah, yeah. Absolutely. And it is you know, it is time to be doing the work and on that point, like we've we've got rate rises. I know that if you drive down the street or go past the petrol station at the moment you'll see the elevated fuel prices and those things will be impacting the consumer for sure. So You want to buy these companies in advance of sort of the cyclical upturn, but how far in advance is the question. We are definitely looking through the specialty retailers just to understand what they could look like. And that's our JB Highfi's. ⁓ I think it's called the Super Cheap group now, ⁓ two that we were looking at. WES Farmers obviously gave a fairly sanguine outlook or for you know, they're they're two core retail businesses which are, you know, very strong moats, being that Bunnings and Kmart's, which would be in a lot of portfolios as well. So i yeah, i I don't expect that you'll see beat and raise type scenarios there, but it is important to be going through them on Premier. Premier's not one that Premium's not one that we hold in these portfolios, not really they're they're very specialty brands which I think are very fashion oriented, so we're not that close to to it. nadine: Mm-hmm. Yeah. Yeah. ⁓ good. Thanks for sharing. ⁓ so David, you're saying watch out for copper today. That'll be an interesting one. lots of people wondering if they should be trimming BHP, but I mean that's that's sort of the the copper go to these days, isn't it? David Walsh: Yeah, we we did a lot of work around sort of their forward production growth plans and and thought that when the price was up at sixty eight dollars we were pricing in a lot of future growth today. ⁓ the but as it's sort of retraced from that back to the sixty, sixty one dollar level, ⁓ nadine: Mm-hmm. David Walsh: You know, I think there'll be a a fair bit of momentum trading around the direction of the copper price. And given that there's other sectors that are economically sensitive in our market that people will be avoiding, it might take ⁓ take a bit of the flow today. So we'll watch that carefully. nadine: Mm-hmm. All right. ⁓ David, it's been a pleasure to have you join us on Osvis AM. I think I've overstayed my welcome. I know you've got a lot of work to do, so we'll let you go. Thank you so much. ⁓ have a great day. David Walsh: Thanks, Nidik. Have a great day to you too. Thanks again. nadine: Take care. All right, folks. ⁓ so we'll be watching the open on osbiz.com.au. Hope you can join us there expecting to see a bit of a lift, maybe a kick along from copper, as David said. ⁓ perhaps we'll be watching a little bit of selling in the energy space. Anything. So we'll see how the day pans out, and we look forward to chatting tomorrow.