Latest / ausbiz a.m / 08.09.26 with Zach Riaz, Banyantree Investment Management
Transcript
- Andrew: Good morning. Welcome to your morning wrap from Osvis. It is Tuesday, September the 8th, and we're expecting the local market to begin slightly lower, ASEX futures down around six points. In a moment, we'll preview the day ahead with Zach Riaz. First, though, quick wrap of where global markets finished overnight. Now, U.S. markets were closed for Labor Day, so focus on Europe. Shares there closing flat with investors remaining cautious amid rising oil prices. And rising US Iran tensions, of course, which is fueling inflation concerns and rate hike expectations. Now, among the commodities, Brent crude has continued its ascent up close to another 1% to $97 a barrel, gold easing to around $4,400 an ounce, and copper surging to its highest ever price on the LME at ⁓ close to $14,500 a ton, as ⁓ traders also factor in the potential for further US tariffs. Bitcoin trading lower at seventy nine thousand US, the Aussie up to seventy two point two US cents. Well, let's get across those market moves. And what to look ahead to today, joining us Zach Riaz Banetary Investment Management. Zach, good morning. Zach: Good morning, Andrew. Andrew: So no lead in from the states. overall, how do you feel as though we're set up at a mo set up at the moment? Zach: Yeah, look ⁓ I I think post reporting season, we've had a fair bit of a ⁓ wash through as well. ⁓ yeah, with with no real lead from US overnight, we're likely to trade pretty pretty soft, I think. ⁓ but more broadly, I think the at your ⁓ comments at the top, ⁓ rates remain the dominant driver. ⁓ you know, correlations between Duration plays and ⁓ equities is it's positive. So, you know, investors looking for a defensive ⁓ posture from you know their duration investments are are are obviously going to be disappointed ⁓ because rates continue to climb higher. ⁓ and and equities continue to find a a a support mechanism as as we all well know through the AI. ⁓ trade and the resilience that's providing for economic growth. But w what what one thing interesting that I I will just call out, Andrew, is that ⁓ some question some investors may question ⁓ well we've had this big ⁓ sort of spike in rates again. Well not big but but material enough, the recent spike in rates ⁓ on the back of obviously the flare up in Middle East tent ⁓ Middle East tensions, ⁓ and and then you know bond yields rising because of Of course, ⁓ meddling by the US Treasury. ⁓ and despite all of this, why hasn't equity markets reacted a bit more? ⁓ and I think one thing I'd point out too ⁓ for those investors is that look at the volatility index in the rates market, which is your move index. ⁓ it's it's the same concept and that the investors look at in the ⁓ VIX index for equity. And the volatility in the move rates market. ⁓ is actually quite well behaved. and and we've often said, and this is not, you know, some ⁓ new revelations we're making, if you're looking for volatility in equity markets, have a look at the move index. ⁓ and if that becomes more volatile, ⁓ obviously rates are moving more aggressively as well. And that has a bigger ⁓ correlation with volatility in equity markets. So ⁓ I I just noticed overnight ⁓ that the volatility in rates market is fairly well behave despite rates moving up and that could explain why equity markets are still behaving pretty well despite, you know, obviously we all know higher rates equals to higher cost of capital. That should have an implication from valuation multiples in equity markets. So I think that's worth keeping ⁓ in mind. Andrew: Yeah, absolutely. And obviously also with the prospect that ⁓ another rate hike is coming here in Australia ⁓ as soon as maybe the end of this month, or if not, maybe Melbourne Cup Day. So, Zach, are you positioning for that? If so, how so? Zach: Yes. Yeah, look, we we have been very steadfast since the start of this year, Andrew, that and duration, anything duration later from an equity perspective as well, you you have to be very careful. ⁓ and you have to be very cautious because the rates market, interest rates markets is is still very binary. What happens in the Middle East subsequently plays into oil markets and there's a very high correlation with oil markets and US tenure ⁓ treasury yield. And and so therefore, ⁓ you know. we we think it's gonna whipsaw around on the back of what's happening in the Middle East. And and so ⁓ where we see s continue to see opportunities is we would be cautious in playing ⁓ duration ⁓ or duration type equities. And where we still see opportunities is obviously ⁓ companies that are leveraged to higher rates. ⁓ and and the first one I'd call out is ⁓ you know, computer share which obviously benefits from the activity in ⁓ global markets ⁓ and IPO activity, secondary ⁓ rating ⁓ issuance, ⁓ but also because it it benefits from higher interest rates because it collects a higher income from the deposit it keeps, that's a that's also a positive. Now, the other one that I'd call out is ⁓ is is banks. It it's and it's interesting it's interesting point to make because right now ⁓ banks have come up Come off a little bit because of valuation concerns. But in theory, all else being equal, higher interest rates are positive for banks. So whilst we are underweight the banks on a ⁓ on a relative core to the benchmark, I I would be very cautious being too underweight the banks because ⁓ or completely out of the banks because higher interest rates do benefit margins. And if Credit quality, ⁓ and the and the opposing ⁓ I guess narrative that, you know, high interest rates will put a damp on credit growth and therefore ⁓ you know, also has a negative impact on earnings. But if we have enough resilience in the economy, ⁓ and and jobs that are still holding up, then then the banks will muddle through and the high interest rate benefits will pull through. So yeah, we're we'd be cautious, but they're the kind of spaces we're looking at. Andrew: Mm. All right. ⁓ I think you also mentioned well, you were looking at computer share too, weren't you? Zach: Correct. Yeah, Computer Share was the first one I called out. ⁓ I think Computer Share is is a high quality company. Walked away very comfortable with its recent results. I was just looking at its valuation. On a forward P it's trading on ⁓ seventeen, eighteen times. That that's that's not clumping the table expensive at all. ⁓ and and so it's it's had a really good rally because obviously rates have rallied. ⁓ but I think there's still a fair bit in there ⁓ for those that want protection from higher rates. Andrew: ⁓ Zach, ⁓ another issue that's well potentially pressing heading into summer is ⁓ El Niño and I guess ⁓ anyone on the East Coast who had a a dose of some very hot weather ⁓ over the weekend. ⁓ it's ⁓ it's a bit of a concern that early in spring, isn't it? But ⁓ maybe ⁓ a taste of what is to come ⁓ predictions this is ⁓ potentially the gonna be the worst on on record. ⁓ is that something you're focused on at the moment? I guess particularly when you look at ag stocks? Zach: Yeah, absolutely. ⁓ you know, so we've been very positive on the broader ⁓ commodities complex ⁓ since the start of the sheet. And what we basically said is that ⁓ we think what you should be looking at is that broader complex. And when we s and when you d break down the recent sort of performance, ⁓ what's interesting is ag stocks have started to move on exactly what you just suggested. ⁓ and I think there's more room to go there, to be honest. And Grand Corp is one that ⁓ if you want to play ⁓ what clearly is shaping up to be ⁓ one of the worst El Niños. And and if you and if you look at the the s southern oscillation index, ⁓ that is showing some ⁓ pretty sort of hairy numbers as well. So ⁓ yeah, we are certainly aware of this. ⁓ we are playing it through a a broader commodities complex, but we also think you can play through the ⁓ stock specific like Grain Coke. Andrew: Mm. ⁓ elsewhere away from soft commodities, ⁓ Zach, as I mentioned there earlier, so copper ⁓ taking out a new record. ⁓ how how bullish are you on copper? ⁓ certainly I mean you look at the performance of major copper producers such as BHP but also some of the poor players too. Have you have you been playing in that space? Zach: Yeah, we we do have it ⁓ obviously the BHPs in the names ⁓ in our portfolio. ⁓ but we also have a pure play copper ⁓ in in capstone. But what concerns me the most about copper, and it's got nothing to do with the demand and its use across the whole ⁓ AI supply chain, the digitalization supply chain, it what concerns me is the overcrowding in that position ⁓ in that ⁓ commodity. So I would be I would be cautious from the perspective that I would continue to take profits along the way with copper. But every sort of data that we see from a positioning perspective, ⁓ copper seems a like a very crowded trade. So that that's what keeps me up about the copper positions we own. But otherwise, I think everyone knows the demand story pretty well. Andrew: Zach, great to get across what you are watching in the market. I hope you have a great day and a great week. ⁓ thanks for joining us from Banyantry. Zach: Thanks, Andrew. Andrew: And that is your Ospiz Morning Wrap. Hope you have a great day. I'm Andrew Gagan. Thanks for listening.