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Your shares in 2026 · The Money Puzzle

• 0:10
  Speaker 1: Hello and welcome to The Australian's Money Puzzle podcast. I'm
• 0:13
  Speaker 1: James Kirkby. Welcome aboard everybody, and happy New Year. Sincere
• 0:18
  Speaker 1: wish that you have a good new year and a
• 0:21
  Speaker 1: prosperous new year. I hope, and we're here to ensure
• 0:25
  Speaker 1: that happens for you. Something we've been doing, you know,
• 0:28
  Speaker 1: on the show at the start of the year, which
• 0:31
  Speaker 1: proves very popular with all listeners, is opening with a
• 0:35
  Speaker 1: series of shows that layout the conditions and predictions for
• 0:42
  Speaker 1: investment markets. And we don't you know, for a moment,
• 0:45
  Speaker 1: we don't believe that anyone knows the future. But I
• 0:48
  Speaker 1: have come to realize it is very important actually as
• 0:51
  Speaker 1: an investor to know what market expects you think about.
• 0:55
  Speaker 1: This time last year, a show very clearly talked about
• 0:58
  Speaker 1: AI and talked about gold and they were very clearly
• 1:01
  Speaker 1: rewarded as investment themes. Okay, so we'll take it step
• 1:06
  Speaker 1: by step and today we're going to look at the
• 1:07
  Speaker 1: big picture and start with a helicopter view of investment
• 1:12
  Speaker 1: markets with Mark jocom the investment strategist at Global X.
• 1:17
  Speaker 1: He's terrific at this. The show he did for us
• 1:21
  Speaker 1: at the start of last year was proved to be
• 1:23
  Speaker 1: terribly popular and I thought it made perfect sense to
• 1:25
  Speaker 1: return to Mark later in the week. So we'll look
• 1:29
  Speaker 1: at the individual stocks, right, so what are people thinking
• 1:32
  Speaker 1: in the market about individual stocks? And we'll have June
• 1:36
  Speaker 1: be Lu with us on that. Then we'll take a
• 1:39
  Speaker 1: look at property with Stuart Weams, and then we'll put
• 1:42
  Speaker 1: it all together with Will Hamilton and we look at
• 1:44
  Speaker 1: the overall overarching picture for you. I think I'll give
• 1:48
  Speaker 1: you a very good start to the year. And to
• 1:50
  Speaker 1: kick things off, I'd like to welcome Mark to come
• 1:53
  Speaker 1: back to the show. How are you Mark?
• 1:55
  Speaker 2: Very good, James, thanks for the kind introduction, great to
• 1:57
  Speaker 2: be back, Happy year and looking forward to our discussion.
• 2:00
  Speaker 1: Happy new Year to you. As like did that pream
• 2:02
  Speaker 1: but it struck me. You know, it's a fairly ambitious
• 2:05
  Speaker 1: It's a fairly ambitious agenda that we put in front
• 2:07
  Speaker 1: of you to tell us what's going to happen in
• 2:11
  Speaker 1: all investment markets around the world in the year ahead.
• 2:13
  Speaker 1: But that's your job, right, that is your job, and
• 2:16
  Speaker 1: so you are particularly well qualified to do so I
• 2:19
  Speaker 1: think what we try and do, I think first of all,
• 2:21
  Speaker 1: we'll just take a look I think for most people,
• 2:24
  Speaker 1: we would assume, right, would assume that they did well
• 2:27
  Speaker 1: last year, particularly if they had international aspects in their portfolio,
• 2:32
  Speaker 1: and more and more people have every year, and every
• 2:35
  Speaker 1: year it becomes more rewarding. So the US has outpaced
• 2:39
  Speaker 1: our market again and again every year, and it happened
• 2:42
  Speaker 1: in twenty twenty five. I presume, certainly looking at the outlook,
• 2:46
  Speaker 1: the formal outlooks, that we expect that might happen again
• 2:49
  Speaker 1: this year. But let's have a quickly look back. Basically,
• 2:52
  Speaker 1: we did the US market, as I say, it did
• 2:55
  Speaker 1: much better, and now looking at why that was a
• 2:57
  Speaker 1: lot to do with the power of the US market.
• 3:00
  Speaker 1: It is now something like approaching up to seventy percent
• 3:03
  Speaker 1: of all markets. So you'll find in today's show when
• 3:06
  Speaker 1: we talk about what we think is going to happen,
• 3:08
  Speaker 1: what the market thinks is going to happen, a lot
• 3:10
  Speaker 1: of it implicitly means what is expected in the US
• 3:15
  Speaker 1: and what US policies may may trigger in other markets
• 3:20
  Speaker 1: like our own. So Mark just give us an In
• 3:23
  Speaker 1: my reading of it, so far, it looks to me
• 3:25
  Speaker 1: like the consensus forecasts, such as they are for Australian
• 3:29
  Speaker 1: shares in the year ahead is something in the order
• 3:32
  Speaker 1: of six percent. In the US it's something in the
• 3:35
  Speaker 1: order of nine percent plus, suggesting again that US shares
• 3:39
  Speaker 1: will outpace Australia shares. Is that what's your house view
• 3:43
  Speaker 1: on that first art.
• 3:45
  Speaker 2: It's a great start to look for from the top down, James,
• 3:48
  Speaker 2: and what you are seeing is the expectations are for
• 3:51
  Speaker 2: this idea of going beyond borders, going beyond Australia, and
• 3:54
  Speaker 2: even maybe considering going beyond the US as well, which
• 3:56
  Speaker 2: we can get into a little bit later looking at
• 3:58
  Speaker 2: other regions as well. As you mentioned, the Australian market
• 4:02
  Speaker 2: did propel higher last year, up around eleven percent. A
• 4:04
  Speaker 2: lot of that was driven by the multiples or what
• 4:07
  Speaker 2: people are willing to pay for the Australian equity market
• 4:10
  Speaker 2: as opposed to meaningful earnings growth. And I think that's
• 4:13
  Speaker 2: going to be the real key for investors to focus
• 4:15
  Speaker 2: on this year, is which companies are going to drive
• 4:18
  Speaker 2: the most in terms of earnings. And I still see
• 4:21
  Speaker 2: the US as being a place for investors to park
• 4:24
  Speaker 2: some of their capital because the US is expecting double
• 4:27
  Speaker 2: digit growth and when you're looking at some sectors that
• 4:30
  Speaker 2: are expecting you know, at least thirteen percent earnings growth,
• 4:34
  Speaker 2: there could be potential for the US market. And I
• 4:36
  Speaker 2: look at the S and P five hundred with the
• 4:39
  Speaker 2: median forecast looking at around about that seventy five hundred mark,
• 4:42
  Speaker 2: and we're currently just shy of seven thousand, So there
• 4:45
  Speaker 2: is that potential upside. Again, most markets generally get around
• 4:49
  Speaker 2: ten to twelve percent per year in terms of the
• 4:51
  Speaker 2: US market, whereas in Australia it might be a little
• 4:54
  Speaker 2: bit more muted. We still are seeing that some forecasts
• 4:57
  Speaker 2: are saying that the Australian market can probably do s
• 5:00
  Speaker 2: digits this year, so mid single digits in terms of
• 5:02
  Speaker 2: price gains, but a lot of that will probably be
• 5:05
  Speaker 2: driven by a income And at the moment, the income
• 5:07
  Speaker 2: is incredibly low here in Australia. It's one of the
• 5:09
  Speaker 2: lowest it's been in multiple years at just north of
• 5:11
  Speaker 2: three percent. The multiple is really expensive at the moment
• 5:15
  Speaker 2: for the Australian market, it's one of the most expensive.
• 5:17
  Speaker 2: It has been propped up by a lot of financials
• 5:19
  Speaker 2: in terms of the banks being the most expensive in
• 5:21
  Speaker 2: the world. And then what we do see is on
• 5:24
  Speaker 2: the earnings growth there may be a bit of a
• 5:26
  Speaker 2: changing of the guard with a lot of the material
• 5:28
  Speaker 2: companies starting to do the heavy lifting versus the banks.
• 5:31
  Speaker 2: So overall we're still very constructive on equities. But I
• 5:34
  Speaker 2: do think go global, go broad, and go beyond board
• 5:38
  Speaker 2: is going to be the key theme for twenty twenty six.
• 5:41
  Speaker 1: So just give listen to something to hang on to,
• 5:43
  Speaker 1: and folks, these are our forecast right, and they can
• 5:46
  Speaker 1: be blown out the window today. It just depends on
• 5:50
  Speaker 1: what happens, right, but all things considered. Best minds in
• 5:53
  Speaker 1: the business. I've suggested to us that the US markets
• 5:58
  Speaker 1: marketers to repeat your thinking. The talk is something in
• 6:01
  Speaker 1: the order of thirteen percent. That's a total return.
• 6:03
  Speaker 2: Yeah, so that's looking at the earnings growth overall of
• 6:06
  Speaker 2: a thirteen percent, But if you actually look into what
• 6:08
  Speaker 2: some of the forecasts are suggesting, you're probably looking for
• 6:10
  Speaker 2: a return of around about ten percent in terms of
• 6:13
  Speaker 2: what most people are forecasting. So that could imply that
• 6:16
  Speaker 2: we might see a bit more broadening in the market.
• 6:18
  Speaker 2: We still think that AI trade is going to be there.
• 6:20
  Speaker 2: I know there's been talks of an AI bubble, but
• 6:22
  Speaker 2: these companies are generating meaningful earnings growth and we can
• 6:24
  Speaker 2: dive into that whole bubble narrative.
• 6:27
  Speaker 1: So this is a concept of that the US share
• 6:30
  Speaker 1: market would return something in the order I said nine
• 6:33
  Speaker 1: at thetime, So maybe ten is I said nine plus
• 6:36
  Speaker 1: ten percent or so that's a total return. Dividends don't matter,
• 6:39
  Speaker 1: an awful lot of the US representing one and a
• 6:42
  Speaker 1: half percent something of the return. And you're just hinting
• 6:45
  Speaker 1: there already that it may be broadened by that, you
• 6:48
  Speaker 1: mean not just the big tech stocks, but the broader
• 6:52
  Speaker 1: US market, the traditional heavyweights you'd be like of the
• 6:56
  Speaker 1: US market and also beyond the US market. Okay, and
• 6:59
  Speaker 1: then in our horror market. You're thinking that at least
• 7:03
  Speaker 1: you're working on forecasts which suggest when you said, I
• 7:07
  Speaker 1: think you said middle digits. So let's just see that
• 7:10
  Speaker 1: if we did five to six percent and we had
• 7:12
  Speaker 1: dividends of three, then we're talking about a return of
• 7:16
  Speaker 1: something in the order of it or Now this is
• 7:17
  Speaker 1: the kind of working model that we're looking at for
• 7:20
  Speaker 1: our hallmarket. The ASEX.
• 7:22
  Speaker 2: Yeah, that's right, James, and I think most of the
• 7:23
  Speaker 2: Australian investors are looking to see, you know, can we
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  Speaker 2: reach that nine thousand mark in terms of the ASEX
• 7:27
  Speaker 2: two hundred if the market's only pricing in you know
• 7:30
  Speaker 2: that mid single digits, whereas you're looking at about four
• 7:32
  Speaker 2: to five percent returns. You do have to question where's
• 7:35
  Speaker 2: it going to come from. Is the valuation is going
• 7:37
  Speaker 2: to continue to be propelled up or is the Australian
• 7:40
  Speaker 2: market going to deal with some pretty solid earnings growth.
• 7:43
  Speaker 2: And we do face a bit of a challenging backdrop
• 7:45
  Speaker 2: in terms of potential interest rate rises, and that's different
• 7:49
  Speaker 2: to a lot of the other markets in the world.
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  Speaker 2: The consumer is quite fragile at the moment, counts to
• 7:53
  Speaker 2: sixty percent of GDP. So it's not shaping up as
• 7:56
  Speaker 2: a boom year, I would say for Australian shares, but
• 7:58
  Speaker 2: it's not a collapse ate either. I think investors in
• 8:00
  Speaker 2: Australia are probably going to be a bit more selective
• 8:03
  Speaker 2: and more modest to how they want to frame the
• 8:05
  Speaker 2: Australian equities allocation.
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  Speaker 1: Okay, it's not very it's not very encouraged. I mean
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  Speaker 1: sitting here knowing that the US market returns more than
• 8:14
  Speaker 1: the Australian market for a year after year pick period
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  Speaker 1: the last ten years, beyond doubt, and knowing that it
• 8:21
  Speaker 1: will outpace. It's knowing that the forecast suggests that it
• 8:23
  Speaker 1: will outpiace US and knowing that our big trump card
• 8:27
  Speaker 1: is dividend yield, but that the dividend yield is actually shrinking, right,
• 8:30
  Speaker 1: So it used to be like four and fast four
• 8:32
  Speaker 1: and a half percent, and you're saying it's now closer
• 8:34
  Speaker 1: to three. Is that right?
• 8:37
  Speaker 2: Yep, mid three percent if you include a little bit
• 8:38
  Speaker 2: of franking credits, around four percent. But that's the lowest
• 8:41
  Speaker 2: level we've seen if you go past COVID in probably
• 8:43
  Speaker 2: the last you know, ten to fifteen years, James. So
• 8:45
  Speaker 2: the problem with the valuations being propped up with the
• 8:47
  Speaker 2: Australian market is dividends just haven't kept our pace. And
• 8:51
  Speaker 2: when you talk about, oh, you know, why is it Australia,
• 8:54
  Speaker 2: you know underperforming the US market? Again, it comes down
• 8:57
  Speaker 2: to earnings growth. The Australian market has only grown earnings
• 9:00
  Speaker 2: around about three to four percent per year over the
• 9:02
  Speaker 2: last fifteen to twenty years, whereas the US has done
• 9:05
  Speaker 2: double digits eleven to twelve percent per year, and long
• 9:07
  Speaker 2: term share prices follow earnings growth, and that's the key
• 9:10
  Speaker 2: when it comes to investing, and.
• 9:12
  Speaker 1: The earnings growth of the big US markets is really
• 9:16
  Speaker 1: the current of the confidence we're seeing at this time
• 9:20
  Speaker 1: of the year so far exact to see.
• 9:22
  Speaker 2: It is and a lot of these companies continue to
• 9:24
  Speaker 2: hit the lights out. I mean even I sometimes like James,
• 9:27
  Speaker 2: how can these companies continue to be earnings And we're
• 9:29
  Speaker 2: about to start the earning season now for Q four
• 9:32
  Speaker 2: of twenty twenty five, all eyes are going to be
• 9:34
  Speaker 2: you know, they've invested a lot of money in their
• 9:36
  Speaker 2: capital expenditure. Everyone is betting on the AI trade. Now
• 9:40
  Speaker 2: it's going to be about who can actually be rewarded
• 9:43
  Speaker 2: for that return on investment. And if these US megacap
• 9:46
  Speaker 2: tech companies and these market dialings called the Magnificent Magnificent
• 9:49
  Speaker 2: seven continue to do that, well, then yeah, the US
• 9:52
  Speaker 2: market is not overvalued because these companies continue to deliver
• 9:56
  Speaker 2: very different to the Nasdaq back in the dot com
• 9:59
  Speaker 2: boom when it was trading at sixty or seventy times
• 10:01
  Speaker 2: price to earnings ratio and they weren't generating a lot
• 10:04
  Speaker 2: of meaningful earnings growth.
• 10:06
  Speaker 3: So very different Now.
• 10:07
  Speaker 2: I think it's actually a really exciting time to be
• 10:09
  Speaker 2: investor dealing with one of the most transformational technologies in
• 10:12
  Speaker 2: my opinion that we're probably going to see this millennium.
• 10:16
  Speaker 1: So in terms of the talking about basics for listeners,
• 10:21
  Speaker 1: in terms of setting the big picture of what's going
• 10:23
  Speaker 1: on in the market and the conditions in which these
• 10:25
  Speaker 1: forecasts are being made. The PE then in the Australian
• 10:29
  Speaker 1: market against the PE in the US market, that is
• 10:33
  Speaker 1: the price earnings ratio FORKS, which is still very much
• 10:36
  Speaker 1: the nearest thing you can get to a pretty decent
• 10:38
  Speaker 1: benchmark in terms of the value offered by the earnings
• 10:42
  Speaker 1: offered by these companies. How do they compare?
• 10:44
  Speaker 2: So when you look at it on a just an
• 10:46
  Speaker 2: absolute number alone, the US is trading a little bit
• 10:49
  Speaker 2: more expensively than Australia. That being said, you have to
• 10:52
  Speaker 2: normalize it for earnings growth. So when we talk about
• 10:55
  Speaker 2: price to earnings ratio, as you mentioned, James, that's pretty
• 10:57
  Speaker 2: much essentially what I investor is willing to pay for
• 11:00
  Speaker 2: one dollar of earnings that is generated from the share market.
• 11:03
  Speaker 2: And historically in Australia it's normally around about their fourteen
• 11:06
  Speaker 2: or fifteen times earnings. Now we're getting close to about
• 11:09
  Speaker 2: twenty times, so it's definitely one of the most expensive
• 11:12
  Speaker 2: we've seen in a long time time. It's in its
• 11:14
  Speaker 2: top percentile, and then when you normalize it for earnings growth, again,
• 11:17
  Speaker 2: it doesn't look that attractive, whereas the US, yes, and
• 11:20
  Speaker 2: maybe trading in the mid twenty so you're looking at
• 11:23
  Speaker 2: twenty two, twenty three or twenty four times earnings, but
• 11:26
  Speaker 2: it is normalized from these fantastic earnings growth, which is
• 11:30
  Speaker 2: why companies are like, you know what, if I can
• 11:32
  Speaker 2: deliver fifteen to twenty percent earnings growth per year, you
• 11:35
  Speaker 2: know what, maybe I'm actually quite comfortable paying twenty five
• 11:37
  Speaker 2: percent earnings as twenty five times earnings, particularly if they
• 11:41
  Speaker 2: are meaningfully generating the bottom line profit, which is what
• 11:43
  Speaker 2: investors always want. So while some stocks may look a
• 11:47
  Speaker 2: little bit frothy in the market, overall, I don't see
• 11:50
  Speaker 2: this as being a armageddonist type thing where there's going
• 11:53
  Speaker 2: to be huge collapse it We're still pretty mid cycle
• 11:56
  Speaker 2: at the moment. Doesn't look like a horizon is on
• 11:59
  Speaker 2: the cards for a session. That being said, you know,
• 12:01
  Speaker 2: markets can throw surprises, and we've already seen that so
• 12:04
  Speaker 2: far this year with what's happening in the US.
• 12:06
  Speaker 1: Exactly, and I'm going to talk to that about that
• 12:08
  Speaker 1: in one moment. But so if we look at it
• 12:09
  Speaker 1: on paper, folks, it would seem an ideal market in
• 12:12
  Speaker 1: many ways for the investor. We've had very good years overseas,
• 12:16
  Speaker 1: particularly in the US, so we've had reasonable years in
• 12:19
  Speaker 1: the local market. On the AX, the driver of all
• 12:23
  Speaker 1: world markets is the US something like sixty six percent
• 12:27
  Speaker 1: of the Morgan Standing Capital International Index now, and it
• 12:31
  Speaker 1: has ideal conditions in many ways. It has a republican
• 12:34
  Speaker 1: pro business government which is deregulatory and unleashing a lot
• 12:39
  Speaker 1: of energy into the markets. It has if a wonderful
• 12:44
  Speaker 1: I suppose technology breakthrough innovation driven boom happening with AI,
• 12:51
  Speaker 1: and innovation driven booms are much more convincing than booms
• 12:55
  Speaker 1: that are based on whatever something is just sheer momentum.
• 12:59
  Speaker 1: So there is a sort of logic, there is palpable
• 13:02
  Speaker 1: change driving the markets because we've all used AI. We
• 13:05
  Speaker 1: all use AI in various ways. I use AI all
• 13:07
  Speaker 1: day long, and it's in terms of productivity. You don't
• 13:10
  Speaker 1: have to be genius to figure out that the productivity
• 13:12
  Speaker 1: will translate to profits. And in that ideal environment, which
• 13:15
  Speaker 1: is a you know, which is a pro business environment
• 13:17
  Speaker 1: in the US. That's the good news. The bad news
• 13:20
  Speaker 1: is that it is an exceptionally unclear political agenda where
• 13:29
  Speaker 1: this market is operating. So since we since the start,
• 13:32
  Speaker 1: this is extraordinary, since the start of the year, and
• 13:36
  Speaker 1: we're coming to you on January the thirteenth. Okay, so
• 13:38
  Speaker 1: it's early days. Most people aren't even back from holidays.
• 13:44
  Speaker 1: I think probably the most significant thing, unfortunately for markets,
• 13:47
  Speaker 1: it's not actually the overseas it's not immediately the overseas
• 13:50
  Speaker 1: activities by the US, but the domestic activities. The intimidation
• 13:54
  Speaker 1: of the Federal Reserve chair and the subpoena overnight in
• 13:59
  Speaker 1: the US on a criminal investigation to the chair of
• 14:02
  Speaker 1: the Federal Reserve. That is chilling stuff for investors who
• 14:07
  Speaker 1: have grown up and stayed in the markets and assumed
• 14:11
  Speaker 1: certain assumed certainties which are now under challenge. Beyond that,
• 14:17
  Speaker 1: there is also an extraordinary reversal of US foreign policy,
• 14:23
  Speaker 1: where we've been told to be like or led to
• 14:25
  Speaker 1: believe since the start of the Trump administration. Trump won
• 14:29
  Speaker 1: that they were accepted by that US exceptionalism and that
• 14:32
  Speaker 1: they were no longer interested in being actively so actively
• 14:36
  Speaker 1: involved in foreign affairs and in foreign nations. And since
• 14:39
  Speaker 1: again since Christmas, they have actually there has been an
• 14:42
  Speaker 1: invasion of a foreign state and the kidnapping of the
• 14:44
  Speaker 1: head of state Venezuela. There's been strikes with allies in Syria,
• 14:48
  Speaker 1: there's talk of strikes in Iran this morning with the
• 14:52
  Speaker 1: Iran protesters and persistent and now I think have to
• 14:56
  Speaker 1: be taken quite seriously of the annex a if you like,
• 15:00
  Speaker 1: of Greenland. This is extraordinary volatire on certain geopolitical climate.
• 15:07
  Speaker 1: How does it play into your notion when you actually
• 15:11
  Speaker 1: go home and lane better nice and you think of
• 15:12
  Speaker 1: all the predictions you're making and all the numbers you're making,
• 15:15
  Speaker 1: how does this stuff plea.
• 15:16
  Speaker 2: To answer your question, James, it's never good because I
• 15:19
  Speaker 2: go to bed and I wake up and I check
• 15:20
  Speaker 2: my socials and I have to think what has Donald
• 15:23
  Speaker 2: Trump tweeted or what does he put out on truth
• 15:24
  Speaker 2: social And that is the era that we're living in.
• 15:27
  Speaker 2: We are living in a headline driven market that is
• 15:30
  Speaker 2: controlled by the US, like you mentioned, is a huge
• 15:33
  Speaker 2: power and a huge global force, and when they run
• 15:36
  Speaker 2: by someone like Trump who can move markets, we do
• 15:38
  Speaker 2: have to pay attention. So I do think it's important
• 15:41
  Speaker 2: that we pay attention to some of these headlines, but
• 15:43
  Speaker 2: we kind of tone down the noise a little bit.
• 15:45
  Speaker 2: So for example, you mentioned the attack that he has
• 15:48
  Speaker 2: put on Powell, very clear that he doesn't like Powell
• 15:51
  Speaker 2: and that he wants to Donald Trump wants to replace
• 15:53
  Speaker 2: him sometime this year with someone who will cut rates.
• 15:56
  Speaker 2: So it does put into question the idea of FED independent.
• 16:00
  Speaker 2: But the markets actually didn't react too much on the
• 16:02
  Speaker 2: news in terms of what happens with equity markets, what
• 16:05
  Speaker 2: happened with the dollar. But then also Donald Trump said,
• 16:08
  Speaker 2: you know what, I don't want twenty percent credit cards
• 16:10
  Speaker 2: in twenty percent rates for credit cards.
• 16:12
  Speaker 1: That's what he wants to put a cap of ten percent.
• 16:14
  Speaker 3: Wants to put a cap of ten percent on credit cards.
• 16:17
  Speaker 1: Credit cards in the US credit card interustries. And we
• 16:19
  Speaker 1: mentioned this books because it's I suppose market's a larger
• 16:23
  Speaker 1: theme of exceptional interference in the operation of markets by
• 16:28
  Speaker 1: the president of the US exceptional. So do the forecast
• 16:34
  Speaker 1: we've been talking about to the Hinge on the policy.
• 16:37
  Speaker 2: A little bit, James, I would say that there's I
• 16:39
  Speaker 2: guess three key drivers when you look at policies and
• 16:42
  Speaker 2: what's happening in markets when you're looking at share prices.
• 16:44
  Speaker 2: So one is monetary policy. So you've got, particularly in
• 16:47
  Speaker 2: the US, you've got at least a couple of rate
• 16:49
  Speaker 2: cards that are predicted two is around the fiscal side.
• 16:52
  Speaker 2: So Trump is still pretty bullish on business over there
• 16:54
  Speaker 2: with the One Big Beautiful Bill Act. But yes, all
• 16:57
  Speaker 2: these essentially announcements could have an ip on share prices
• 17:00
  Speaker 2: and the credit card ones is what I mentioned, because
• 17:02
  Speaker 2: you saw the likes of Capital one in American Express
• 17:05
  Speaker 2: fall down from five to ten percent just in one
• 17:07
  Speaker 2: day based on one announcement. That being said, the broader
• 17:10
  Speaker 2: market is still approaching all time highs, So I do
• 17:13
  Speaker 2: think that these things can move markets, but really it's
• 17:15
  Speaker 2: also going to come down to business fundamentals as well,
• 17:18
  Speaker 2: and you have seen that, you know, with a lot
• 17:20
  Speaker 2: of these announcements, whether it's you know, Trump going into
• 17:23
  Speaker 2: a capture of the Venezuela leader, the oil market wasn't disrupted
• 17:27
  Speaker 2: too much because in the biggest scheme of things, even
• 17:29
  Speaker 2: though Venezuela does have one of the biggest supplies in
• 17:31
  Speaker 2: terms of reserves, they only account for about one percent
• 17:34
  Speaker 2: of the total oil market. So the oil market was
• 17:36
  Speaker 2: reading through it quite quite easily. And I think that's
• 17:39
  Speaker 2: what investors need to focus on. Don't focus on headlines,
• 17:42
  Speaker 2: focus on price, and focus on how the market reacts
• 17:45
  Speaker 2: to these certain things. If the market is not reacting
• 17:47
  Speaker 2: too much on it, we'll maybe look through some of
• 17:49
  Speaker 2: the noise. Greenland's and a very interesting one that you mentioned, James,
• 17:52
  Speaker 2: because there's two very key components there around the demand
• 17:56
  Speaker 2: for critical rare earth minerals and also defense. So Greenlands
• 18:00
  Speaker 2: and an area that has you know, lithium, graphite, nickel, cobalt,
• 18:04
  Speaker 2: and Trump wants less reliance on China for rare earth exposure,
• 18:07
  Speaker 2: so Greenland could become that Western allied supply hub. And
• 18:11
  Speaker 2: then also the idea of a strategic defense of being
• 18:14
  Speaker 2: a priority for Trump as well. And I think investors
• 18:17
  Speaker 2: can also look through that and also play through these
• 18:19
  Speaker 2: key themes by looking at investing into some of those areas,
• 18:22
  Speaker 2: which you can actually do. So yes, to answer your question,
• 18:25
  Speaker 2: it can impact the long term impacts of especially what
• 18:29
  Speaker 2: we're going to see in the markets. But again, focus
• 18:31
  Speaker 2: on how the market reacts and digest some of these news,
• 18:34
  Speaker 2: especially some of those clearing events which we are seeing
• 18:36
  Speaker 2: is going to become all the more common leading into
• 18:39
  Speaker 2: this year could be a year of more volatility just
• 18:42
  Speaker 2: means that for investors, diversification is going to be the
• 18:45
  Speaker 2: superpower for this.
• 18:46
  Speaker 1: Year, right and that notion of being attuned to news
• 18:50
  Speaker 1: is more important.
• 18:51
  Speaker 2: It is, and James, you and I mean we're in
• 18:53
  Speaker 2: the content business. It's kind of great to talk about
• 18:55
  Speaker 2: what's going on with markets because there's so much happening.
• 18:58
  Speaker 2: But sometimes investors just need to focus on the fundamentals.
• 19:01
  Speaker 2: And if you focus on some of the key fundamentals
• 19:03
  Speaker 2: around what's driving businesses today, innovation, technology, AI, corporate governance,
• 19:09
  Speaker 2: shareholder return, those can do the heavy lifting when it
• 19:12
  Speaker 2: comes to actual shareholder returns, especially in the long term.
• 19:14
  Speaker 2: Short term market noise, but long term focus on fundamentals.
• 19:18
  Speaker 1: Okay, we'll take a break. We'll be back in the moment. Folks. Hello,
• 19:31
  Speaker 1: Welcome back to the Australians Money Puzzle podcast for ust
• 19:34
  Speaker 1: show of the year of our series on how to
• 19:39
  Speaker 1: Invest in twenty twenty five. We want to guide you
• 19:41
  Speaker 1: through the markets. We want to give you a full
• 19:43
  Speaker 1: picture exactly where we're at and what is the broader
• 19:47
  Speaker 1: expectation out there now. Today's show our first show with
• 19:51
  Speaker 1: Mark jocom of Global x ETFs. Markt is the investment
• 19:54
  Speaker 1: strategist at global X. This is his job basically to
• 19:58
  Speaker 1: take a line on this, and we've been talking. First
• 20:01
  Speaker 1: to the first part of the show, Marks basically pointed
• 20:03
  Speaker 1: out how the fundamentals are strong, how he's explained to
• 20:07
  Speaker 1: some degree why there is such optimism in the market,
• 20:10
  Speaker 1: particularly in the US, and the US will drive all markets,
• 20:13
  Speaker 1: so we can say safely that there is optimism in
• 20:15
  Speaker 1: the markets listed markets for talking share markets in particular
• 20:19
  Speaker 1: here today now issue I was saying market to some extent, though,
• 20:25
  Speaker 1: everything must be considered through the prism of the US
• 20:30
  Speaker 1: being so powerful now been seventy percent of all markets,
• 20:33
  Speaker 1: and then those markets been driven by policy, and that
• 20:36
  Speaker 1: policy been set by a unique figure where the policy
• 20:41
  Speaker 1: can be surprising, volatile, an erratic, and on that basis
• 20:45
  Speaker 1: the markets I think, tell me if I'm wrong, But
• 20:47
  Speaker 1: to me, I thought part of what you were saying
• 20:49
  Speaker 1: that first part of the show was investors, you can't
• 20:52
  Speaker 1: set and forget. You really want to be tuned into
• 20:55
  Speaker 1: what's happening. I always say day by day, but you
• 20:57
  Speaker 1: really need to be tuned into the settings in the
• 21:00
  Speaker 1: because they are liable to.
• 21:01
  Speaker 2: Change, absolutely, James. So when it comes to paying attention
• 21:08
  Speaker 2: to what's going on in news. This figurehead does have
• 21:10
  Speaker 2: the power to move markets, and as we've seen that
• 21:13
  Speaker 2: through different types of sectors that have responded to news.
• 21:16
  Speaker 2: So really important for investors to stay attuned with what's
• 21:19
  Speaker 2: going on in markets. But also the word unprecedented and
• 21:22
  Speaker 2: gets used a lot. What he's done with someone like
• 21:24
  Speaker 2: j Powell is unprecedented. I don't think I've ever seen
• 21:27
  Speaker 2: that or read about that across your major economies. Attacking
• 21:32
  Speaker 2: central bank heads, that does not happen. So because you've
• 21:35
  Speaker 2: got someone who's quite erratic, pay attention to what he says,
• 21:38
  Speaker 2: but then also pay attention to what's happening in markets.
• 21:41
  Speaker 2: And we were chatting offline James about some of the
• 21:43
  Speaker 2: volatility indicators they still relatively muted.
• 21:46
  Speaker 3: So even though all.
• 21:47
  Speaker 2: This headlines around what Trump is doing really digested, how
• 21:51
  Speaker 2: the market is really absorbing that information because that is
• 21:54
  Speaker 2: what the markets do. They collectively pretty much assimilate all
• 21:58
  Speaker 2: the information in markets. So when it comes to Trump
• 22:02
  Speaker 2: influence both on the market, do take it seriously, but
• 22:06
  Speaker 2: contextualize it. And I think that this year is going
• 22:08
  Speaker 2: to be a very volatile year when it comes to
• 22:11
  Speaker 2: share market. We've had some cracking years over the last
• 22:13
  Speaker 2: couple of years since twenty twenty two for the US
• 22:15
  Speaker 2: share market. So there may be some nuances where certain sectors,
• 22:18
  Speaker 2: certain areas, or certain figureheads that Trump doesn't like make
• 22:22
  Speaker 2: it hit quite hard. So the key for diversification is important.
• 22:25
  Speaker 2: But yes, James, to your point, don't just focus on fundamentals.
• 22:28
  Speaker 2: You're still going to have to have that overall lens
• 22:30
  Speaker 2: of what physical policy and what it's going to be
• 22:32
  Speaker 2: Trump's card for the year ahead.
• 22:35
  Speaker 1: Okay, so let's look at our market mark for the
• 22:39
  Speaker 1: year six, so I can look back basically at what
• 22:41
  Speaker 1: happened last year was expected in the year ahead very broadly.
• 22:46
  Speaker 1: It's interesting how we one of the things we did
• 22:48
  Speaker 1: call right and I think when we did this show
• 22:50
  Speaker 1: last year, we were talking about the nature of the
• 22:53
  Speaker 1: market at the time and our market it seemed to
• 22:56
  Speaker 1: go pretty well right through and then at the end
• 22:57
  Speaker 1: of the year last team didn't it as the bank's
• 23:00
  Speaker 1: sort of hard. Could you encapture it what happened in
• 23:03
  Speaker 1: twenty twenty four.
• 23:03
  Speaker 2: Yeah, as we said, James, on the back of our
• 23:05
  Speaker 2: conversation late in twenty twenty four, we did say that
• 23:08
  Speaker 2: the Australian market would probably have a positive year, which
• 23:10
  Speaker 2: it did. It was up eleven percent last year. Again,
• 23:13
  Speaker 2: most of that was driven by the valuation expansion rather
• 23:16
  Speaker 2: than the earnings growth which I was talking before. Now,
• 23:19
  Speaker 2: we did say during our podcast that we recorded that
• 23:22
  Speaker 2: perhaps the miners would outperform the banks, and that's exactly
• 23:25
  Speaker 2: what happened. So the materials sector led the Australian market.
• 23:29
  Speaker 2: I think it was up thirty eight percent, led by
• 23:31
  Speaker 2: some of the gold miners copper miners versus the banks,
• 23:34
  Speaker 2: which were only up collectively around about eighteen percent. But
• 23:38
  Speaker 2: it was actually led by the big four excluding CBA.
• 23:41
  Speaker 2: Funnily enough, so you started to see AY and ZED,
• 23:43
  Speaker 2: Westpac and NAB start to take the baton away from CBA.
• 23:47
  Speaker 2: But look, the market was also dragged down by some
• 23:49
  Speaker 2: weaker performances. We saw things like WIS Tech zero, CSL,
• 23:53
  Speaker 2: James Hardy, so there were still some pretty bad performers.
• 23:57
  Speaker 2: But it really is about materials. It made up over
• 23:59
  Speaker 2: half of the return of the total market. I think
• 24:02
  Speaker 2: BHP was up thirty six percent, Northern Star was up
• 24:05
  Speaker 2: over one hundred percent, Newmont over up one hundred and
• 24:07
  Speaker 2: fifty percent. So this gold mine has really led the chart,
• 24:10
  Speaker 2: propelled by higher goal prices.
• 24:12
  Speaker 1: Overall.
• 24:13
  Speaker 2: Now, in terms of what's going to happen, I guess
• 24:15
  Speaker 2: this year, we still do think that we are at
• 24:18
  Speaker 2: least in the start of a potential commodity supercycle, at
• 24:21
  Speaker 2: least globally, so we still are quite bullish on materials overall.
• 24:26
  Speaker 2: I think that the banks might face a little bit
• 24:28
  Speaker 2: of pressure this year. I mean, it's important to talk
• 24:31
  Speaker 2: about it because they are a huge part of our market,
• 24:33
  Speaker 2: but really I feel like with some of the banks,
• 24:37
  Speaker 2: we are a little bit unsure on what's.
• 24:39
  Speaker 3: Going to happen with interest rates. It's a huge part
• 24:41
  Speaker 3: of their margins, you know.
• 24:42
  Speaker 2: So I feel with something like that, you've got the
• 24:45
  Speaker 2: RBA potentially going to increase rates based on hot inflation
• 24:48
  Speaker 2: prints hotter consumer spending. But overall some of the bank's
• 24:53
  Speaker 2: cost income ratios might be under pressure as well. So
• 24:56
  Speaker 2: because there's such a huge driving commodities, You've got copper,
• 24:59
  Speaker 2: critical minerals, electrification, energy transition. I think these are some
• 25:03
  Speaker 2: of the strategies or some of the areas that a
• 25:05
  Speaker 2: lot of the market economists potentially think are going to
• 25:08
  Speaker 2: outperform this year, supported not just by valuation but by
• 25:11
  Speaker 2: structural demand. So I do think that Australia still could
• 25:14
  Speaker 2: be an interesting place to be in. But selectivity and
• 25:17
  Speaker 2: particularly having exposure to some of the miners is going
• 25:19
  Speaker 2: to be incredibly important for investors this year.
• 25:22
  Speaker 1: It's interesting just even from a symbolic point of view,
• 25:25
  Speaker 1: BHP is nearly back as the biggest stock in the market.
• 25:28
  Speaker 3: It is almost about to overtake CBA. I did read about.
• 25:31
  Speaker 1: That, Yeah, but to overtake CV which is really significant.
• 25:35
  Speaker 1: And of course what's also significant is that CSL is
• 25:37
  Speaker 1: nowhere to be seen where it was on our biggest
• 25:41
  Speaker 1: stock for quite a viole and that's just what a
• 25:43
  Speaker 1: singular story. And we're trying to stealth thematic, So trying
• 25:45
  Speaker 1: to steath thematic here and not go down any rabbit holes, folks.
• 25:48
  Speaker 2: I would just add as well, James, that there also
• 25:50
  Speaker 2: could be quite a lot of corporate activity happening, and
• 25:52
  Speaker 2: we've already seen at the start of the year takeover
• 25:55
  Speaker 2: bids with the likes of Blue Scope Steel, Rio Tinto
• 25:58
  Speaker 2: and Glencore who are trying to essentially trying to be
• 26:00
  Speaker 2: trying to get hold of these precious as assets such
• 26:03
  Speaker 2: as copper. So that could also be a really interesting
• 26:05
  Speaker 2: area that could drive some market returns overall.
• 26:07
  Speaker 3: So again, a lot of corporate activity.
• 26:09
  Speaker 2: Just in the first first few days of the twenty
• 26:11
  Speaker 2: twenty six calendar year.
• 26:14
  Speaker 1: You mentioned how Newmont was of one hundred percent. What
• 26:17
  Speaker 1: a pity that it sold itself before it jumped one
• 26:19
  Speaker 1: hundred percent to Barrack.
• 26:20
  Speaker 3: Yes, exactly right.
• 26:21
  Speaker 1: It was a Barrack Newmont, one of the big North
• 26:23
  Speaker 1: American miners, and it was effectively sort of removed as
• 26:27
  Speaker 1: an Australian company from the market. What giveaway that was
• 26:30
  Speaker 1: yet again, so okay, just on the miners, yes, as
• 26:33
  Speaker 1: you say, BHP, very strong year, approaching the biggest stock
• 26:37
  Speaker 1: in the local market. Again, folks, if you haven't noticed that,
• 26:40
  Speaker 1: real about twenty five percent up, really strong, all the
• 26:43
  Speaker 1: big miners. And then on top of that, of course
• 26:45
  Speaker 1: the gold miners and the gold area. And I'm cautious
• 26:50
  Speaker 1: of mentioning ETF or ETFs in particular, but it's really
• 26:53
  Speaker 1: worth noting that you're in your ETF offerings the gold
• 26:58
  Speaker 1: miners for whatever about gold was going well, but the
• 27:01
  Speaker 1: gold miners absolutely shooting the lights out obviously at the moment.
• 27:04
  Speaker 1: So this time asked you you thought the banks, You
• 27:07
  Speaker 1: thought that basically the miners might come through, and they
• 27:10
  Speaker 1: did at the end of the year, and you're still
• 27:14
  Speaker 1: optimistic about them as a sector going forward. Just briefly,
• 27:18
  Speaker 1: this is because of electrification, This is because of critical mintors.
• 27:23
  Speaker 2: What you hit the nail on the head, James, this
• 27:25
  Speaker 2: global AI and infrastructure investment, it remains very supportive and
• 27:29
  Speaker 2: a huge tailwind for the resource demand. Australia's got huge
• 27:32
  Speaker 2: reserves when it comes to these types of companies. We've
• 27:35
  Speaker 2: even seen the likes of lithium miners absolutely jump the
• 27:37
  Speaker 2: lights out as well. We think lithium prices have troughed,
• 27:40
  Speaker 2: but it really is about that broader application around, especially
• 27:45
  Speaker 2: around erect electrification, and we know how much power is
• 27:48
  Speaker 2: going to be needed to power this revolution. I think
• 27:51
  Speaker 2: the last couple of years James, since chat GPT came
• 27:53
  Speaker 2: onto people's radar, semiconductors, we're definitely the place for investors
• 27:57
  Speaker 2: to be now because of how energy and tensive a
• 28:00
  Speaker 2: lot of these data center buildouts are going to be.
• 28:02
  Speaker 2: We know that cop is going to be important. We
• 28:04
  Speaker 2: know uranium is going to be important, and that's why
• 28:06
  Speaker 2: a lot of those mining companies have done exceptionally well
• 28:09
  Speaker 2: and something I'm very bullish on. And then on gold,
• 28:11
  Speaker 2: why goal miners have done so well is because just
• 28:13
  Speaker 2: how strong their cash flow margins are from higher and
• 28:16
  Speaker 2: record goal prices. If they can mine gold and actually
• 28:18
  Speaker 2: extract that for a lower cost and then sell it
• 28:20
  Speaker 2: on for a higher amount, well those margins are going
• 28:23
  Speaker 2: to be boosted, which is why gold miners had a
• 28:25
  Speaker 2: terrific year, and a lot of people play gold miners
• 28:28
  Speaker 2: because it's a bit of a leverage impact on the
• 28:30
  Speaker 2: goal price. We've even seen some with silver as well,
• 28:33
  Speaker 2: also doing well in some of the silver miners doing
• 28:35
  Speaker 2: pretty well too. So I do think that for investors
• 28:38
  Speaker 2: who want to play their theme, they can play that
• 28:39
  Speaker 2: through the share market or like you said, there's a
• 28:41
  Speaker 2: lot of ETFs that actually hold the physical basket, but
• 28:44
  Speaker 2: that's the physical commodity itself. But that's I think more
• 28:46
  Speaker 2: as a diversification piece and a hedge against potential political
• 28:50
  Speaker 2: uncertainty and share market volatility.
• 28:54
  Speaker 1: Yes, and as you see, underneath all this, folks, is
• 28:56
  Speaker 1: this amazing thing that whatever the mind makes, whatever costs
• 28:59
  Speaker 1: of mind to take out, doesn't change. So let's say
• 29:02
  Speaker 1: the price of silver goes through the roof. Price of
• 29:04
  Speaker 1: silver basically doubled, but the cost of mining it didn't double.
• 29:09
  Speaker 1: And so you can see what Mark's talking about the
• 29:10
  Speaker 1: margins and how they fly up. Okay, so Mark hotspot mining,
• 29:14
  Speaker 1: materials and interesting I mean even Blue Skull, which you know,
• 29:18
  Speaker 1: who would have thought that the people would be fighting
• 29:20
  Speaker 1: over it a year ago? So right across and materials
• 29:24
  Speaker 1: includes all that, doesn't It goes right through not just
• 29:26
  Speaker 1: mining obviously, but obviously further down the track the production
• 29:29
  Speaker 1: of mind resources, so Steely for instance, being a pretty
• 29:32
  Speaker 1: good example off the back of the money of vire.
• 29:35
  Speaker 1: So that's that's one big sector. And the second, obviously
• 29:38
  Speaker 1: big sector with US is banks. I would have thought
• 29:40
  Speaker 1: very broadly the banks had their sell off, and that
• 29:42
  Speaker 1: basically would have been we'd have been improving from here.
• 29:45
  Speaker 2: Yeah, I think a lot of the banks still remain
• 29:47
  Speaker 2: in focus, James, and I just think you might just
• 29:49
  Speaker 2: see slower revenue growth which could put some of that
• 29:52
  Speaker 2: pressure on those cost income ratios that I spoke about.
• 29:55
  Speaker 2: A lot of companies are starting to think about company
• 29:58
  Speaker 2: buybacks as well. So when the companies actually buy back
• 30:01
  Speaker 2: some of their shares to return capital to shareholders. We've
• 30:03
  Speaker 2: seen sun PORP and Bank of Queensland do that, and
• 30:06
  Speaker 2: I think that'll be a really important component to support
• 30:08
  Speaker 2: shareholder returns. But I just worry about how competitive the
• 30:11
  Speaker 2: banking environment is at the moment. If we do see
• 30:14
  Speaker 2: rising interest rates or that does bode well for potentially
• 30:18
  Speaker 2: the margins of the bank to increase, Really it's going
• 30:21
  Speaker 2: to impact the consumer a lot, which is already quite fragile.
• 30:24
  Speaker 2: Consumer confidence is a little bit low, so that does
• 30:27
  Speaker 2: start to kind of tie in to the leverage credit
• 30:29
  Speaker 2: cycle as well. We see less borrowing that may impact
• 30:32
  Speaker 2: some of the banks. And really the banks are priced
• 30:34
  Speaker 2: to perfection, so they really need to hit a lot
• 30:37
  Speaker 2: of these numbers, and if it comes to earning seasons
• 30:39
  Speaker 2: that they don't, I could see a little bit of
• 30:41
  Speaker 2: sell off in some of these banks as well. Still
• 30:43
  Speaker 2: important to own for their income, their dividends, the franking
• 30:46
  Speaker 2: credits as well, but we are signed to see that
• 30:49
  Speaker 2: the debt side of the bank being a lot more attractive,
• 30:51
  Speaker 2: being the bonds that these banks are issuing, which are
• 30:53
  Speaker 2: more paying more yield or higher interest rate than the
• 30:56
  Speaker 2: actual dividend yield itself. So that's something to be conscious
• 30:59
  Speaker 2: of is just mon to the banking stocks in terms
• 31:02
  Speaker 2: of their revenue growth and how they see the year ahead,
• 31:04
  Speaker 2: particularly if the RBA does increase rates, and we are
• 31:07
  Speaker 2: pricing in at least one rate cut this year in
• 31:10
  Speaker 2: terms of what the market is predicting for this year,
• 31:13
  Speaker 2: one rate rise, one right rise, that's what the markets
• 31:16
  Speaker 2: are predicting at It's.
• 31:19
  Speaker 1: Yeah, yeah, no, I don't belave you. I mean, we're
• 31:21
  Speaker 1: talking about Raycotts in the US at the start, but
• 31:23
  Speaker 1: rate rise is here. And the theory, folks, of course,
• 31:26
  Speaker 1: is that the banks do better when race rise because
• 31:27
  Speaker 1: you know, they improve their margin and their interest margins,
• 31:30
  Speaker 1: and that what, as Mark says, that's a bit academic
• 31:33
  Speaker 1: because if people put on the street borrow less, then
• 31:37
  Speaker 1: it becomes more competitive, so then the business isn't as good.
• 31:40
  Speaker 1: And certainly when you have a situation we're just talking
• 31:42
  Speaker 1: about it a turn, but not a huge trajectory change
• 31:45
  Speaker 1: in rates, that will probably be all the more true. Okay,
• 31:48
  Speaker 1: very good. We will keep the individual star conversation so
• 31:51
  Speaker 1: later in the week. I'm sure you won't want to
• 31:53
  Speaker 1: hear about that. We will do that on Thursday. All right, Mark,
• 31:56
  Speaker 1: We're going to take a small break and we'll be
• 31:58
  Speaker 1: back to you in a moment. We're going to take
• 31:59
  Speaker 1: a look at the juiciest thing of all overseas markets,
• 32:02
  Speaker 1: particularly the US. Hello, Welcome back to The Australian's Money
• 32:14
  Speaker 1: Puzzle podcast, James Kirby with Mark Jocum of Global x
• 32:18
  Speaker 1: ETFs Investment Strategies. Okay, Mark, everyone makes all their money
• 32:21
  Speaker 1: in the US. Again and again. I looked at my
• 32:23
  Speaker 1: SMSF I got my accounts. I got my accounts in
• 32:27
  Speaker 1: December for a close off at the end of June,
• 32:29
  Speaker 1: which is not really very impressive. Nonetheless, it's at US.
• 32:34
  Speaker 1: It's at overseas earnings. It's US earnings, to be precise.
• 32:38
  Speaker 1: That was the cream on the cake. Not for the
• 32:40
  Speaker 1: first time. And as you say, really important. The defense
• 32:44
  Speaker 1: of the ASX being that the dividends are good is
• 32:47
  Speaker 1: not quite what it used to be. It's really important.
• 32:49
  Speaker 1: I mean, on a slow year, if your dividend U
• 32:51
  Speaker 1: has gone from four and a half to three and
• 32:54
  Speaker 1: the market only makes three, say on price, that's a
• 32:57
  Speaker 1: big difference. So a lot of and we've laid at
• 33:00
  Speaker 1: the start of the show the basics, the fundamentals, and
• 33:03
  Speaker 1: specifically the political risks that are afoot in the US.
• 33:06
  Speaker 1: So let's just talk now strictly from a pragmatic investor
• 33:09
  Speaker 1: point of view in terms of what's possible there. So
• 33:14
  Speaker 1: at the start you mentioned something very interesting that it
• 33:17
  Speaker 1: may actually broaden out, so that we've had this issue
• 33:19
  Speaker 1: that the market was heavily based on a handful of
• 33:24
  Speaker 1: big tech stocks and this wasn't good, many people thought
• 33:27
  Speaker 1: because it was a narrow market. But rather than that
• 33:31
  Speaker 1: becoming a problem, you've made the point that it may
• 33:34
  Speaker 1: that the power of the market may actually broaden out
• 33:37
  Speaker 1: so that we have less dependence on those. Might that
• 33:40
  Speaker 1: play out?
• 33:42
  Speaker 2: Yeah, So a lot of people when they think about
• 33:43
  Speaker 2: the return to the US, they think of these Magnificent
• 33:45
  Speaker 2: seven companies, right. They're the big megacap tech companies that
• 33:48
  Speaker 2: have driven a lot of the returns. We do see
• 33:51
  Speaker 2: twenty twenty six as being a year where you do
• 33:52
  Speaker 2: start to see this broadening happening. And what broadening means
• 33:55
  Speaker 2: is that you'll probably see a little bit more contribution
• 33:58
  Speaker 2: from the other non Magnific and seven companies. We're already
• 34:01
  Speaker 2: starting to see a lot of the earnings revisions for
• 34:03
  Speaker 2: these let's call the SMP four ninety three starting to rise,
• 34:07
  Speaker 2: and they could make up a bigger component of the
• 34:09
  Speaker 2: overall earnings growth leading into this year. So that's that
• 34:12
  Speaker 2: broadening trade that not just the Magnificent seven are going
• 34:14
  Speaker 2: to be driving a lot of the share market returns.
• 34:17
  Speaker 2: I still think you still need to park some of
• 34:19
  Speaker 2: your cash within the Magnificent seven companies because these are
• 34:21
  Speaker 2: these huge capitalist machines. But even think about it, a
• 34:24
  Speaker 2: lot of people think, oh, well, you know, maybe I
• 34:26
  Speaker 2: want to be away from the US. But these S
• 34:29
  Speaker 2: and P five hundred companies they generate at least half
• 34:32
  Speaker 2: of their revenue from overseas as well, So it's not
• 34:35
  Speaker 2: just about the US market, it's about being part of
• 34:37
  Speaker 2: a global market. They just happen to be domiciled in
• 34:40
  Speaker 2: the US as well. And not just that people are
• 34:42
  Speaker 2: talking about paying these massive valuations, but you're seeing a
• 34:45
  Speaker 2: lot of M and A activity or mergers and acquisitions
• 34:47
  Speaker 2: happening in the US. So when you're getting exposure to
• 34:50
  Speaker 2: the Magnificent seven companies, technically you own seven companies, but
• 34:53
  Speaker 2: underlying they have so many subsidiaries that they owning hundreds
• 34:56
  Speaker 2: and hundreds of companies, so you are getting exposure to
• 35:00
  Speaker 2: a diverse set of companies that in my opinion, still
• 35:03
  Speaker 2: don't look expensive at all, and in those signs of
• 35:05
  Speaker 2: a bubble just yet, there could be some irrational exuberance
• 35:08
  Speaker 2: in other parts of the market. But for the US,
• 35:11
  Speaker 2: we still think the US is going to be a
• 35:12
  Speaker 2: place to at least do quite well in twenty twenty six.
• 35:15
  Speaker 2: But there is going to be some selectivity within the US.
• 35:18
  Speaker 2: There could be some pain for some companies and there
• 35:21
  Speaker 2: might be some divergence, which is why we think having
• 35:23
  Speaker 2: a broad example, and you've even seen small companies James
• 35:26
  Speaker 2: are off to one of their best starts of the
• 35:27
  Speaker 2: year so far this year. We saw it in Australia
• 35:30
  Speaker 2: last year that small caps actually outperformed large cap I
• 35:33
  Speaker 2: think in the US small caps could also be an
• 35:34
  Speaker 2: interesting place for investors to look at.
• 35:37
  Speaker 1: US small cups.
• 35:37
  Speaker 2: Yes, US small caps, so we're looking at something like
• 35:40
  Speaker 2: the Russell two thousand. It's up at least at double
• 35:43
  Speaker 2: digits so far to start the year, and I think
• 35:45
  Speaker 2: that's exactly what you're going to just see. Just a
• 35:47
  Speaker 2: bit more broadening, especially at this AI value chain, happens
• 35:50
  Speaker 2: to not just impact these large hyper scalers which are
• 35:53
  Speaker 2: spending hundreds and hundreds of billions of dollars. Think about
• 35:55
  Speaker 2: where that all those hundreds of billions of dollars are
• 35:57
  Speaker 2: getting allocated to. All the picks and shovels within this
• 36:00
  Speaker 2: AI revolution, the power supplied, the cooling systems, the data centers.
• 36:04
  Speaker 2: These are some of the broadening trades that we're starting
• 36:06
  Speaker 2: to see within the US market. So still attractive spot
• 36:09
  Speaker 2: to be just might not be led by some of
• 36:11
  Speaker 2: these megacap tech companies. It might just be led broader
• 36:14
  Speaker 2: by a smaller set of companies overall.
• 36:17
  Speaker 1: The S and P four nine and three. You said,
• 36:19
  Speaker 1: very good. I love the concept. Yeah, because people.
• 36:23
  Speaker 2: Like isolating the magnificent seven in their portfolio, which is fine.
• 36:26
  Speaker 2: It's like almost like having like the top ten in
• 36:28
  Speaker 2: Australia and you want to be the X Top ten
• 36:30
  Speaker 2: or the X Top twenty. So whilst those are doing
• 36:33
  Speaker 2: a lot of the heavy lifting, we've just done some
• 36:35
  Speaker 2: analysis that shows that the call the SMP four ninety three,
• 36:38
  Speaker 2: or if you take away the seven largest companies, which
• 36:40
  Speaker 2: are these magnificent seven companies, earning's growth is starting to
• 36:44
  Speaker 2: pick up with a lot of them. So a lot
• 36:46
  Speaker 2: of investors are probably under allocated to the broader part
• 36:48
  Speaker 2: of the US market. So that's why I feel it
• 36:50
  Speaker 2: could be a nice little pocket that might actually outperform
• 36:53
  Speaker 2: this year. That being said, you still have to have
• 36:55
  Speaker 2: your allocation to these big tech companies. It's very hard
• 36:58
  Speaker 2: to outperform in a market if you don't have exposure
• 37:01
  Speaker 2: to them.
• 37:02
  Speaker 1: It sounds like it's part of what informs your own
• 37:04
  Speaker 1: sort of buoyancy boyant view on the market.
• 37:07
  Speaker 3: Yeah, definitely.
• 37:07
  Speaker 2: And when you talk about the large cap end of town,
• 37:10
  Speaker 2: just remember that sometimes the companies within them go through
• 37:13
  Speaker 2: different periods of our performance. Last year, the Magnifics seven
• 37:16
  Speaker 2: companies were up about twenty five percent last year, but
• 37:20
  Speaker 2: it was led by the likes of Alphabet and Nvidia,
• 37:22
  Speaker 2: whereas other companies like Amazon and even Apple were only
• 37:25
  Speaker 2: up five to eight percent.
• 37:27
  Speaker 3: I think it was so there could.
• 37:28
  Speaker 2: Be a little bit more of divergence within those Magnificents
• 37:31
  Speaker 2: seven companies depending on how they perform. Especially you know
• 37:34
  Speaker 2: Tesla being so part of the ev side of things,
• 37:37
  Speaker 2: they're getting a lot of competition from the likes of
• 37:39
  Speaker 2: BYD and other types of Chinese companies. And we're still
• 37:41
  Speaker 2: very bullish on China, which we can get into in
• 37:43
  Speaker 2: a moment, so there could be a little bit of
• 37:45
  Speaker 2: divergence within those magnificents seven companies. Overall, we remain pretty
• 37:49
  Speaker 2: constructive though of the US overall, okay, And.
• 37:52
  Speaker 1: What about the wider world. They're MISKI basically the Global
• 37:54
  Speaker 1: Index or Emerging Markets for the non US markets for
• 37:58
  Speaker 1: its review.
• 37:59
  Speaker 2: Yes, not a lot of people allocate towards things like
• 38:02
  Speaker 2: emerging markets, James. If you look at most Australian portfolios,
• 38:04
  Speaker 2: it's normally around Aussie shares and the US, maybe a
• 38:07
  Speaker 2: little bit of Europe. I think this year is going
• 38:09
  Speaker 2: to be a really interesting year to go beyond the US,
• 38:11
  Speaker 2: beyond borders, and to look at areas that for me
• 38:14
  Speaker 2: look really attractive, like Japan and China and even broader
• 38:18
  Speaker 2: merging markets like India. So to touch on a few
• 38:21
  Speaker 2: of them. Japan's going through a really interesting part at
• 38:23
  Speaker 2: the moment where they've got a new prime minister in
• 38:26
  Speaker 2: there's a lot of physical stimulus coming out of there.
• 38:29
  Speaker 2: They're focusing on things like sharehold return and corporate governance.
• 38:32
  Speaker 2: Over fifty percent of the actual Japanese households hold more
• 38:35
  Speaker 2: than cash overall in their portfolio, so that could come
• 38:38
  Speaker 2: into the market as well, and you've still got access
• 38:40
  Speaker 2: to some pretty leading AI companies as well, like you know,
• 38:43
  Speaker 2: Tokyo Electron, soft Bank, Hitachi. There's a lot of companies
• 38:47
  Speaker 2: doing some really good things there. So Japan's probably one
• 38:49
  Speaker 2: of my interesting picks for twenty twenty six that I
• 38:51
  Speaker 2: think could do really well. Had a really good year
• 38:53
  Speaker 2: in twenty twenty five, but I think it's going to
• 38:55
  Speaker 2: continue in twenty twenty six.
• 38:57
  Speaker 3: And then China.
• 38:58
  Speaker 2: Really you're sourcing a lot of AI innovation happening there,
• 39:01
  Speaker 2: and a lot of people James say that, you know,
• 39:03
  Speaker 2: merging markets and China is really uninvestable at the moment
• 39:06
  Speaker 2: just because of the political uncertainty, the risk of the leverage,
• 39:09
  Speaker 2: and the property market. But the AI gains are still
• 39:12
  Speaker 2: yet to materialize in China, and if you look at
• 39:15
  Speaker 2: some crazy stats, like they have the most amount of
• 39:17
  Speaker 2: AI patents from a trademark perspective compared to the rest
• 39:20
  Speaker 2: of the world, and it's trading at a pretty compelling
• 39:22
  Speaker 2: evaluation as well. So I do think China is going
• 39:24
  Speaker 2: to also start to be a lot of the heavy
• 39:26
  Speaker 2: lifting when it comes to this next AI trade, particularly
• 39:29
  Speaker 2: if we have another what we call a deep seek
• 39:31
  Speaker 2: moment where we see some of these low cost models
• 39:34
  Speaker 2: that can be rolled out at a fraction of the
• 39:36
  Speaker 2: cost and could get broad adoption. And then finally on
• 39:39
  Speaker 2: emerging markets, James, I think India is also going to
• 39:41
  Speaker 2: be a very I would call it a contrarian trade
• 39:44
  Speaker 2: at the moment. And why I say contrarian is because
• 39:47
  Speaker 2: it was actually one of the few markets that didn't
• 39:48
  Speaker 2: do so well last year because it was hampered by
• 39:52
  Speaker 2: one little bit of weaker earnings, a little bit of
• 39:55
  Speaker 2: our flows from foreign investors, but just uncertainty around US tariffs.
• 39:58
  Speaker 3: And to bring it back to your gushion.
• 40:00
  Speaker 2: At the start, Trump can move markets if he's imposing
• 40:03
  Speaker 2: fifty percent tariffs on these companies and also restricting things
• 40:06
  Speaker 2: like visas, that can definitely impact market sentiment. But now
• 40:10
  Speaker 2: I think positioning is changing. Valuations have come down in
• 40:13
  Speaker 2: India and there could be expectations for positive surprises, particularly
• 40:17
  Speaker 2: on the other side, James. If Trump and Mody in
• 40:20
  Speaker 2: India actually agree to a trade trus you could see
• 40:22
  Speaker 2: the India market absolutely rocket because it's delivering about seven
• 40:26
  Speaker 2: to eight percent GDP growth overall. So again, I think
• 40:29
  Speaker 2: this year could be a year where you go beyond borders,
• 40:32
  Speaker 2: where you look beyond just Australia, beyond just the US,
• 40:35
  Speaker 2: and you think about the likes of what could also
• 40:37
  Speaker 2: drive markets, not to make up a huge part of
• 40:39
  Speaker 2: your portfolio, but have exposure to Japanese equities, have some
• 40:42
  Speaker 2: two Chinese equities, or broad emerging markets like India, even
• 40:45
  Speaker 2: Europe with the massive defense cycle superspend that's happening as well.
• 40:48
  Speaker 2: I think if you're remiss not to think about you
• 40:50
  Speaker 2: know that other thirty percent, James that you mention of
• 40:52
  Speaker 2: the World Index which can drive markets as it did
• 40:55
  Speaker 2: so last year.
• 40:56
  Speaker 1: Yeah, well, I'm just back back of what you're saying
• 40:58
  Speaker 1: there is interesting. Been reading a lot of US bast
• 41:01
  Speaker 1: investment outlooks and the US based institutional vesters. They're talking
• 41:06
  Speaker 1: about the opportunities beyond the US for which they don't
• 41:09
  Speaker 1: normally do. Just one nice thing on for our listeners
• 41:13
  Speaker 1: when they want to look at these areas and they
• 41:17
  Speaker 1: see and obviously they might have taken they combine anytf
• 41:20
  Speaker 1: from a variety of sources. You're just worn What about
• 41:23
  Speaker 1: currency and hedging? Did I read that there had been
• 41:26
  Speaker 1: a lift in the number of Australians buying hedged ETFs
• 41:30
  Speaker 1: ver unhedged, and is that so and what does it mean?
• 41:34
  Speaker 2: You must be reading our research Chames, which is great
• 41:36
  Speaker 2: because I must speak. Yet we have noticed that James
• 41:39
  Speaker 2: historically only around about probably ten to fifteen percent of
• 41:43
  Speaker 2: flows they go into share market ETFs generally tend to
• 41:46
  Speaker 2: be currency hedged, which is where it protects the value
• 41:49
  Speaker 2: just in case the Australian dollar drops or rises against
• 41:51
  Speaker 2: a basket of currencies like called the US dollar or
• 41:54
  Speaker 2: the euro. But now you're starting to see this, I
• 41:56
  Speaker 2: guess this interest rate divergence that's happening in Australia could
• 41:59
  Speaker 2: actually be a tailwind for currency hedging, and about one
• 42:03
  Speaker 2: in five dollars is now going into currency hedged ETFs. So,
• 42:07
  Speaker 2: for example, we're seeing policy divergence with the pretty much
• 42:11
  Speaker 2: everyone cutting rates. I mean, some of the merging markets
• 42:13
  Speaker 2: are rising rates, and Japan's is another example. But if
• 42:16
  Speaker 2: Australia is going to be potentially increasing interest rates but
• 42:20
  Speaker 2: the US and other markets are going to continue to
• 42:22
  Speaker 2: cut rates, you may start to see a bit of
• 42:24
  Speaker 2: the impact on the Australian dollar, which is currently trading
• 42:26
  Speaker 2: at about sixty seven US cents. I've seen a lot
• 42:29
  Speaker 2: of forecasts that say that it probably will breach about
• 42:31
  Speaker 2: seventy cents, so there could be some upside, especially if
• 42:34
  Speaker 2: the US dollar continues to weaken. So that's where currency
• 42:36
  Speaker 2: hedging could form a part of your portfolio to get
• 42:39
  Speaker 2: a little bit of that extra return from the currency
• 42:41
  Speaker 2: appreciation that's happening in the Australian market. So it is
• 42:44
  Speaker 2: starting to happen with flows. And now the great thing
• 42:46
  Speaker 2: about ETFs, James, is you don't have to worry about
• 42:48
  Speaker 2: doing the whole foreign exchange currency yourself and ETF can
• 42:52
  Speaker 2: do that for you.
• 42:52
  Speaker 3: So if you want to invest in call it.
• 42:55
  Speaker 2: You know, like the Fang stocks, there's a currency hedge version,
• 42:57
  Speaker 2: or of the S and P five hundred there's a
• 42:59
  Speaker 2: hedge version. Just have a look at your options within
• 43:01
  Speaker 2: the Australian market.
• 43:03
  Speaker 1: Yes, well worth bringing up. I wanted to bring that
• 43:05
  Speaker 1: up with you, and not to suggest you do you
• 43:07
  Speaker 1: don't hedge folks, but to know that the number of
• 43:11
  Speaker 1: people hedging in ETFs in particular has risen and has
• 43:16
  Speaker 1: risen notably in recent months just because of the of
• 43:19
  Speaker 1: what Mark has been saying. Terrific Mark, great to talk
• 43:21
  Speaker 1: to you again, Thank you very much of your world
• 43:24
  Speaker 1: tour around the world with Mark Joakum in forty minutes
• 43:28
  Speaker 1: or so, marvelous. Thank you very much for coming on
• 43:30
  Speaker 1: the show.
• 43:31
  Speaker 3: Thanks again, James really enjoyed it.
• 43:32
  Speaker 1: That was Mark Jocum, the investment strategist at Global x Ets.
• 43:37
  Speaker 1: Terrific conversation with him. As always, I hope that was useful,
• 43:40
  Speaker 1: A damn good starter. I would like to think for
• 43:43
  Speaker 1: the year in terms of setting you your sales if
• 43:45
  Speaker 1: you like, for the year ahead, stick with us. We're
• 43:49
  Speaker 1: going to talk about individual share choices and individual share
• 43:52
  Speaker 1: codes next, which would be really interesting. We'll do that
• 43:54
  Speaker 1: on Thursday with a June Beleu of ten Cup. Talk
• 43:58
  Speaker 1: to you soon. So the wood, the
• 44:03
  Speaker 2: S