1 00:00:03,660 --> 00:00:06,230 Sean Aylmer: Welcome to the Fear and Greed daily interview. I'm Sean 2 00:00:06,320 --> 00:00:09,430 Sean Aylmer: Aylmer. Interest rates are set to rise in coming months, 3 00:00:09,460 --> 00:00:12,379 Sean Aylmer: possibly as soon as June. While that has an obvious 4 00:00:12,380 --> 00:00:14,660 Sean Aylmer: impact on homeowners, those looking to get into the housing 5 00:00:14,660 --> 00:00:18,040 Sean Aylmer: market, and of course anyone with savings accounts, I wanted 6 00:00:18,040 --> 00:00:20,370 Sean Aylmer: to look today at what it means for investing in 7 00:00:20,370 --> 00:00:24,090 Sean Aylmer: equities. Chris Brycki is the CEO of online investment advisor, 8 00:00:24,790 --> 00:00:26,030 Sean Aylmer: Stockspot. Chris, welcome back to Fear and Greed. 9 00:00:26,670 --> 00:00:26,930 Chris Brycki: Thanks Sean. 10 00:00:27,860 --> 00:00:29,840 Sean Aylmer: Let's jump right into it. I want to go into 11 00:00:29,910 --> 00:00:33,290 Sean Aylmer: sectors as we go along, but first up, what does 12 00:00:33,290 --> 00:00:36,920 Sean Aylmer: a rising interest rate environment mean for investors in the local 13 00:00:36,920 --> 00:00:39,620 Sean Aylmer: market, particularly given we haven't had one for more than 14 00:00:39,620 --> 00:00:40,150 Sean Aylmer: a decade? 15 00:00:40,860 --> 00:00:44,220 Chris Brycki: No we haven't. I mean, our interest rates rose a small 16 00:00:44,220 --> 00:00:47,280 Chris Brycki: amount after the financial crisis, but then we're cut pretty 17 00:00:47,280 --> 00:00:51,080 Chris Brycki: quickly from, I think about 2011 onwards. So Aussie investors 18 00:00:51,080 --> 00:00:55,340 Chris Brycki: haven't really seen a sustained rising environment of interest rates 19 00:00:55,340 --> 00:00:58,530 Chris Brycki: for quite a while. For investors, it actually means different 20 00:00:58,530 --> 00:01:02,380 Chris Brycki: things in Australia. So our share market is actually better 21 00:01:02,380 --> 00:01:06,190 Chris Brycki: insulated for rising interest rates than other global share markets, 22 00:01:06,420 --> 00:01:09,069 Chris Brycki: really because two of our big sectors in Australia, which 23 00:01:09,069 --> 00:01:13,100 Chris Brycki: are mining companies and banking companies, they actually tend to 24 00:01:13,100 --> 00:01:16,130 Chris Brycki: do quite well in a rising rate environment for different 25 00:01:16,130 --> 00:01:19,700 Chris Brycki: reasons. The resources do well because typically rising rates goes 26 00:01:19,700 --> 00:01:23,270 Chris Brycki: hand in hand with rising commodity prices, and then banks 27 00:01:23,270 --> 00:01:26,010 Chris Brycki: do pretty well when rates rise because they tend to 28 00:01:26,360 --> 00:01:29,410 Chris Brycki: borrow in their short end, so borrow in short term 29 00:01:29,410 --> 00:01:32,190 Chris Brycki: interest rates, and then lend in the long end and they 30 00:01:32,390 --> 00:01:35,610 Chris Brycki: earn a larger margin when they're lending in higher interest 31 00:01:35,610 --> 00:01:38,510 Chris Brycki: rates. So those two sectors do well, but then there's 32 00:01:38,510 --> 00:01:41,120 Chris Brycki: others like real estate, as you mentioned that don't tend 33 00:01:41,120 --> 00:01:41,710 Chris Brycki: to do as well. 34 00:01:41,720 --> 00:01:44,959 Sean Aylmer: Okay. So let's expand on the banks just a little 35 00:01:44,959 --> 00:01:47,610 Sean Aylmer: bit. They've done really well over the last month or so, I 36 00:01:47,610 --> 00:01:50,500 Sean Aylmer: think they're up about on average, the big four, about 37 00:01:50,520 --> 00:01:54,410 Sean Aylmer: 10% or something rather, easily the best of the large 38 00:01:54,410 --> 00:01:56,750 Sean Aylmer: caps in the market. That's on the back of what 39 00:01:56,750 --> 00:02:00,180 Sean Aylmer: you're saying is suggestion that their net interest margins may grow. 40 00:02:00,560 --> 00:02:01,920 Sean Aylmer: Do you think that will keep going, or do you 41 00:02:01,920 --> 00:02:04,280 Sean Aylmer: think it's priced in, what's your take on the banks 42 00:02:04,280 --> 00:02:04,810 Sean Aylmer: at the moment? 43 00:02:05,500 --> 00:02:08,680 Chris Brycki: Well, the tricky thing is that usually information is priced 44 00:02:08,680 --> 00:02:11,510 Chris Brycki: in pretty quickly, and so there is higher commodity prices are 45 00:02:11,510 --> 00:02:15,380 Chris Brycki: priced into BHP share price. The higher interest margins that 46 00:02:15,419 --> 00:02:18,600 Chris Brycki: the banks could potentially earn are probably largely priced into 47 00:02:18,600 --> 00:02:22,260 Chris Brycki: banks. That doesn't mean that interest rates will rise and they will be able to 48 00:02:22,260 --> 00:02:24,530 Chris Brycki: earn those margins. And I guess on the flip side for 49 00:02:24,550 --> 00:02:28,280 Chris Brycki: banks, the risk is that if rising rates cause households 50 00:02:28,889 --> 00:02:31,340 Chris Brycki: to hemorrhage and really struggle to pay off their mortgages, 51 00:02:31,340 --> 00:02:34,860 Chris Brycki: they could be facing higher bad debts as well. So 52 00:02:34,860 --> 00:02:37,179 Chris Brycki: there's a flip side for banks to higher rates. 53 00:02:37,910 --> 00:02:39,799 Sean Aylmer: Okay. And the minors it's on the back of commodity 54 00:02:39,800 --> 00:02:43,079 Sean Aylmer: prices, and the theory there is that rising interest rates 55 00:02:43,130 --> 00:02:46,639 Sean Aylmer: occur when economies are growing, therefore the demand for commodities 56 00:02:46,639 --> 00:02:49,700 Sean Aylmer: is stronger. How does the war in Ukraine play into 57 00:02:49,700 --> 00:02:50,990 Sean Aylmer: all that theory? 58 00:02:51,740 --> 00:02:55,910 Chris Brycki: Well, particularly this rising rate environment, the reason why rates 59 00:02:55,910 --> 00:02:58,950 Chris Brycki: are expected to raise so aggressively and the interest rate 60 00:02:58,950 --> 00:03:02,370 Chris Brycki: futures market in Australia has rates expected to be 3.2% 61 00:03:02,370 --> 00:03:05,560 Chris Brycki: by the end of 2023, so a huge number of 62 00:03:05,560 --> 00:03:08,339 Chris Brycki: rate hikes. A lot of this is due to inflation 63 00:03:08,340 --> 00:03:11,780 Chris Brycki: and central banks really trying to curb inflation, which is 64 00:03:11,780 --> 00:03:14,739 Chris Brycki: getting out of control in a lot of countries. So 65 00:03:15,000 --> 00:03:18,820 Chris Brycki: commodity prices has been one of these drivers of inflation. 66 00:03:18,820 --> 00:03:21,899 Chris Brycki: You've seen a lot of the raw input prices into 67 00:03:21,900 --> 00:03:25,010 Chris Brycki: steel, or your copper, and oil, all of these have 68 00:03:25,010 --> 00:03:28,060 Chris Brycki: gone up a lot. And then the Ukraine conflict has 69 00:03:28,060 --> 00:03:31,090 Chris Brycki: only sort of accelerated that in the fuel sort of 70 00:03:31,090 --> 00:03:34,210 Chris Brycki: side of things. So we've seen oil prices really rocket 71 00:03:34,370 --> 00:03:37,380 Chris Brycki: because of the impact that Russia has on that market and 72 00:03:37,870 --> 00:03:40,810 Chris Brycki: in supplying Europe with a lot of their oil and gas as well. 73 00:03:41,480 --> 00:03:43,080 Sean Aylmer: Stay with me Chris, we'll be back in a minute. 74 00:03:48,840 --> 00:03:52,110 Sean Aylmer: My guess this morning is Chris Brycki, founder and CEO of 75 00:03:52,110 --> 00:03:56,470 Sean Aylmer: online investment advisor, Stockspot. Okay, now you mentioned the property 76 00:03:56,470 --> 00:03:59,730 Sean Aylmer: sector, the real estate investment trusts are a huge chunk 77 00:03:59,770 --> 00:04:02,750 Sean Aylmer: of the ASX 200, and obviously a huge chunk of 78 00:04:02,750 --> 00:04:07,210 Sean Aylmer: people investing through managed funds, that sort of thing. I 79 00:04:07,210 --> 00:04:09,750 Sean Aylmer: mean, I always get a bit confused around REITs because, 80 00:04:10,200 --> 00:04:12,660 Sean Aylmer: I mean, if they're inflation linked, if rents are inflation 81 00:04:12,670 --> 00:04:14,670 Sean Aylmer: linked it might be okay, but if they're not, it won't 82 00:04:14,670 --> 00:04:17,370 Sean Aylmer: be okay. How do we get our head around the 83 00:04:17,370 --> 00:04:18,380 Sean Aylmer: real estate investment trust? 84 00:04:19,220 --> 00:04:22,200 Chris Brycki: Well, so I think in our market real estate trusts are about 10% 85 00:04:22,200 --> 00:04:24,260 Chris Brycki: of our market. So they're big, but they're not too big. And I 86 00:04:24,260 --> 00:04:27,230 Chris Brycki: think people's biggest exposure in most cases is just to 87 00:04:27,230 --> 00:04:31,050 Chris Brycki: their own residential real estate. Look, I see property really 88 00:04:31,050 --> 00:04:33,820 Chris Brycki: as it trades like I would say a long dated 89 00:04:33,820 --> 00:04:37,419 Chris Brycki: bond. So basically real estate gives you a series of 90 00:04:37,420 --> 00:04:41,099 Chris Brycki: cash flows indefinitely, and therefore people look at real estate 91 00:04:41,100 --> 00:04:43,489 Chris Brycki: like a bond. So what we've seen over the last 92 00:04:43,490 --> 00:04:46,409 Chris Brycki: couple of months is government bonds have an enormous fall, 93 00:04:46,410 --> 00:04:49,550 Chris Brycki: actually their biggest fall in 40 years due to the 94 00:04:49,550 --> 00:04:53,410 Chris Brycki: expectations of higher interest rates. And you would expect that 95 00:04:53,410 --> 00:04:56,510 Chris Brycki: property and REITs would follow. And in the US, for 96 00:04:56,510 --> 00:04:59,779 Chris Brycki: instance, we've seen home builders, the sector that's involved with 97 00:04:59,779 --> 00:05:03,340 Chris Brycki: building houses fall 34% since the start of the year 98 00:05:03,690 --> 00:05:06,380 Chris Brycki: due to them being the second derivative, or I guess 99 00:05:06,400 --> 00:05:09,950 Chris Brycki: the next stage of housing. The problem with housing is 100 00:05:09,950 --> 00:05:12,150 Chris Brycki: that a lot of the value of housing comes from 101 00:05:12,150 --> 00:05:13,849 Chris Brycki: the cash flows that are a long way into the 102 00:05:13,850 --> 00:05:16,970 Chris Brycki: future. So if you own a home, yes, you're earning 103 00:05:17,070 --> 00:05:19,400 Chris Brycki: some rent this year or next year, but we know 104 00:05:19,400 --> 00:05:22,580 Chris Brycki: in Australia, rental yields are very low then, two, 2.5%, 105 00:05:23,360 --> 00:05:25,970 Chris Brycki: or in some cases even lower. And so you're not 106 00:05:25,970 --> 00:05:28,409 Chris Brycki: earning a lot off that asset right now, and so 107 00:05:28,410 --> 00:05:30,920 Chris Brycki: you really need to be able to value what you're 108 00:05:30,920 --> 00:05:32,529 Chris Brycki: going to earn off that asset a long way into 109 00:05:32,529 --> 00:05:35,339 Chris Brycki: the future. Now, if inflation and interest rates are going 110 00:05:35,339 --> 00:05:38,390 Chris Brycki: to eat away at those earnings in the future, then 111 00:05:38,390 --> 00:05:41,289 Chris Brycki: that asset inevitably is worth less. And so I think 112 00:05:41,290 --> 00:05:44,440 Chris Brycki: that's how people are looking at property, they're looking at 113 00:05:44,440 --> 00:05:47,330 Chris Brycki: all of those rental cash flows that they're expecting 10 114 00:05:47,330 --> 00:05:51,000 Chris Brycki: years and 20 years into the future and saying, well, if inflation's going 115 00:05:51,000 --> 00:05:53,740 Chris Brycki: to be at three, four, or 5%, they're not worth 116 00:05:53,740 --> 00:05:54,240 Chris Brycki: a lot now. 117 00:05:54,710 --> 00:05:57,130 Sean Aylmer: Okay. Now the other one that people group into the 118 00:05:57,130 --> 00:06:01,659 Sean Aylmer: real assets camp is infrastructure. So real estate and infrastructure 119 00:06:01,660 --> 00:06:04,469 Sean Aylmer: always thought about as real assets because they are assets 120 00:06:04,470 --> 00:06:08,190 Sean Aylmer: put very tangible. What about infrastructure, does that follow the 121 00:06:08,190 --> 00:06:10,240 Sean Aylmer: same line as the REITs or not? 122 00:06:10,740 --> 00:06:12,980 Chris Brycki: It does to some extent. I mean, with a lot 123 00:06:12,980 --> 00:06:16,909 Chris Brycki: of infrastructure it's built into the contracts and infrastructure has 124 00:06:16,910 --> 00:06:21,670 Chris Brycki: that they're often able to increase prices to counteract inflation. 125 00:06:21,930 --> 00:06:25,270 Chris Brycki: So in some cases they may be less sensitive, but 126 00:06:25,770 --> 00:06:28,870 Chris Brycki: really like other assets, if a lot of their cash 127 00:06:28,870 --> 00:06:31,799 Chris Brycki: flows are well into the future, then they're going to 128 00:06:31,800 --> 00:06:34,930 Chris Brycki: suffer when interest rates are eroding those future cash flows. 129 00:06:34,970 --> 00:06:37,380 Sean Aylmer: And we don't seem to have as many infrastructure assets 130 00:06:37,380 --> 00:06:39,809 Sean Aylmer: nowadays, things with Sydney Airport being sold to the super 131 00:06:39,810 --> 00:06:40,810 Sean Aylmer: funds and things like that. 132 00:06:41,300 --> 00:06:44,790 Chris Brycki: Yeah, you're right. There's only a few big infrastructure assets 133 00:06:44,790 --> 00:06:45,940 Chris Brycki: listed still on the market. 134 00:06:46,640 --> 00:06:48,270 Sean Aylmer: So let's, I mean, I just want to go through 135 00:06:48,270 --> 00:06:52,270 Sean Aylmer: some of the other sectors, retail and both discretionary and 136 00:06:52,270 --> 00:06:54,770 Sean Aylmer: staples. So the staples being the more for the Woolworth's 137 00:06:54,770 --> 00:06:58,310 Sean Aylmer: coals type things, discretionary thinking JB Hi- Fi, those sorts 138 00:06:58,310 --> 00:07:00,040 Sean Aylmer: of things. What about those sectors? 139 00:07:00,760 --> 00:07:03,070 Chris Brycki: I mean, it really depends on the sort of environment 140 00:07:03,070 --> 00:07:05,360 Chris Brycki: we're going to go into and also the impact that 141 00:07:05,360 --> 00:07:08,279 Chris Brycki: inflation and interest rates has on the household sector. So 142 00:07:08,570 --> 00:07:11,960 Chris Brycki: if interest rates rise really quickly, and right now they 143 00:07:11,960 --> 00:07:15,130 Chris Brycki: are expected to rise over 3% in the next 18 144 00:07:15,130 --> 00:07:19,490 Chris Brycki: months, you would imagine that would really the crimp household's 145 00:07:19,490 --> 00:07:23,880 Chris Brycki: ability to spend on everything. But obviously people still need 146 00:07:23,880 --> 00:07:27,010 Chris Brycki: to buy food and food prices are going to inflate. 147 00:07:27,010 --> 00:07:29,450 Chris Brycki: I mean, anyone that's shopped at Willie's or Kohl's recently 148 00:07:29,450 --> 00:07:32,610 Chris Brycki: will have noticed that prices are increasing. You still have 149 00:07:32,610 --> 00:07:35,720 Chris Brycki: to buy food and so if more of your household 150 00:07:35,720 --> 00:07:38,770 Chris Brycki: savings are going towards paying off your mortgage and buying 151 00:07:38,770 --> 00:07:42,900 Chris Brycki: groceries, you would expect there's probably less leftover to spend 152 00:07:42,900 --> 00:07:47,040 Chris Brycki: at David Jones. So discretionary is likely to suffer in 153 00:07:47,040 --> 00:07:49,410 Chris Brycki: that sort of environment. But to what extent that's already 154 00:07:49,410 --> 00:07:53,500 Chris Brycki: sort of built into prices in discretionary retail, apart from 155 00:07:53,500 --> 00:07:56,040 Chris Brycki: online businesses have done pretty poorly in Australia for the 156 00:07:56,040 --> 00:07:59,860 Chris Brycki: last 10 years. So there isn't that much optimistic built into 157 00:07:59,860 --> 00:08:00,970 Chris Brycki: that sector in the first place. 158 00:08:01,390 --> 00:08:04,280 Sean Aylmer: And we can't talk without mentioning Telstra, there's about a million 159 00:08:04,360 --> 00:08:07,550 Sean Aylmer: retail shareholders out there who own Telstra and of course, 160 00:08:07,550 --> 00:08:11,720 Sean Aylmer: lots of institutions. How do you think about the telco sector, 161 00:08:11,800 --> 00:08:13,020 Sean Aylmer: but particularly Telstra really? 162 00:08:13,310 --> 00:08:15,370 Chris Brycki: I mean, it's one that, again, it probably doesn't have 163 00:08:15,370 --> 00:08:18,810 Chris Brycki: a huge impact compared to some other sectors, however, like 164 00:08:18,810 --> 00:08:22,480 Chris Brycki: property and like infrastructure, if it is an asset that 165 00:08:22,480 --> 00:08:26,740 Chris Brycki: trades based on a dividend yield, then when the dividend 166 00:08:26,780 --> 00:08:29,260 Chris Brycki: of the cash free rate at the moment is 0%, 167 00:08:30,060 --> 00:08:32,460 Chris Brycki: then people are prepared to bid up the dividend yield 168 00:08:32,600 --> 00:08:35,219 Chris Brycki: of shares like Telstra. But you can imagine if people 169 00:08:35,220 --> 00:08:38,729 Chris Brycki: can get 3% just in the bank, then businesses like 170 00:08:38,730 --> 00:08:42,580 Chris Brycki: Telstra become less attractive with their current dividend yields. So 171 00:08:42,580 --> 00:08:44,630 Chris Brycki: you would expect there to be pressure on all sorts 172 00:08:44,630 --> 00:08:48,280 Chris Brycki: of companies where they're owned for the dividend yield and 173 00:08:48,280 --> 00:08:52,480 Chris Brycki: they might not be able to increase prices to counteract the 174 00:08:52,929 --> 00:08:54,700 Chris Brycki: inflation that's happening in the economy. 175 00:08:55,550 --> 00:08:57,750 Sean Aylmer: So if you just move away from the sectors and 176 00:08:57,750 --> 00:09:00,319 Sean Aylmer: we're not a financial advice show, and if you go to Stockspot, 177 00:09:00,320 --> 00:09:03,500 Sean Aylmer: you can get all your information from Stockspot, and Chris and 178 00:09:03,500 --> 00:09:06,840 Sean Aylmer: his team. But if we move away from, what I'm 179 00:09:06,840 --> 00:09:10,350 Sean Aylmer: trying to say, we're not recommending anything here, but outside 180 00:09:10,350 --> 00:09:13,860 Sean Aylmer: Australia, you said that mean when we started, you said 181 00:09:13,860 --> 00:09:17,859 Sean Aylmer: because of mining and banks, the Australian market itself may 182 00:09:17,860 --> 00:09:20,070 Sean Aylmer: do better than some other market. So if I'm a 183 00:09:20,070 --> 00:09:23,040 Sean Aylmer: passive investor, I want to buy an ETF, should I 184 00:09:23,040 --> 00:09:24,870 Sean Aylmer: be thinking about the US, should I be thinking about 185 00:09:24,870 --> 00:09:29,220 Sean Aylmer: Asia, Europe, Australia? I'm just wondering how all those different 186 00:09:29,220 --> 00:09:32,370 Sean Aylmer: geographies rank with each other, I suppose. 187 00:09:33,050 --> 00:09:34,679 Chris Brycki: I mean, it's a good question. So what we've seen 188 00:09:34,679 --> 00:09:37,309 Chris Brycki: over the last 10 years, Sean, is that the Australian share 189 00:09:37,309 --> 00:09:40,459 Chris Brycki: market has really underperformed the rest of the world because 190 00:09:40,460 --> 00:09:43,550 Chris Brycki: banks and resources have actually been a big drag in 191 00:09:43,550 --> 00:09:47,230 Chris Brycki: an environment of falling inflation, which is what's really we've 192 00:09:47,230 --> 00:09:51,740 Chris Brycki: seen since about 2011 to 2020. We really suffered, our 193 00:09:51,740 --> 00:09:54,809 Chris Brycki: market fell and went sideways and really isn't any higher 194 00:09:54,820 --> 00:09:57,300 Chris Brycki: than it was 10 years ago. Whereas the US share 195 00:09:57,300 --> 00:10:00,620 Chris Brycki: market and other markets have really powered higher due to 196 00:10:00,620 --> 00:10:05,439 Chris Brycki: having a bigger exposure to sectors like technology. So there's 197 00:10:05,440 --> 00:10:07,500 Chris Brycki: been a bit of a reversal actually over the first 198 00:10:07,500 --> 00:10:11,250 Chris Brycki: quarter of 2022, because those sectors that were holding us 199 00:10:11,250 --> 00:10:14,240 Chris Brycki: back are finally actually helping us stay ahead of the 200 00:10:14,240 --> 00:10:17,280 Chris Brycki: rest of the world. And actually what we see in that first quarter was 201 00:10:17,280 --> 00:10:22,240 Chris Brycki: that emerging market shares, largely because of the Russia impact, 202 00:10:22,340 --> 00:10:25,890 Chris Brycki: fell by 9% in the first quarter, and even global 203 00:10:25,890 --> 00:10:29,360 Chris Brycki: US shares fell by like 6%, but Australian shares were up 204 00:10:29,360 --> 00:10:33,059 Chris Brycki: by 2% in the first quarter. And so I think over 205 00:10:33,059 --> 00:10:35,710 Chris Brycki: the last 10 years, there has gradually been a lot 206 00:10:35,710 --> 00:10:39,160 Chris Brycki: of Aussie money through ETFs and other ways of investing 207 00:10:39,160 --> 00:10:42,689 Chris Brycki: that have gone towards global shares and US shares, and 208 00:10:42,690 --> 00:10:44,830 Chris Brycki: you might start to see a bit of a reversal of 209 00:10:44,830 --> 00:10:48,260 Chris Brycki: that if our market starts to outperform. Certainly our advice 210 00:10:48,260 --> 00:10:51,010 Chris Brycki: to clients is still, you should have an exposure to 211 00:10:51,240 --> 00:10:54,050 Chris Brycki: all countries and all sectors. It's very hard to know 212 00:10:54,559 --> 00:10:57,679 Chris Brycki: when one country might perform better than another country, but 213 00:10:57,750 --> 00:11:00,520 Chris Brycki: certainly there's been a lot of negativity directed at Australia 214 00:11:00,660 --> 00:11:02,559 Chris Brycki: over the last 10 years, so it wouldn't surprise me 215 00:11:02,570 --> 00:11:05,280 Chris Brycki: if our market is actually one of the better performers going 216 00:11:05,280 --> 00:11:09,590 Chris Brycki: forward. I think where global investors have liked Australia over 217 00:11:09,590 --> 00:11:13,020 Chris Brycki: the last few months is also because of our geographical 218 00:11:13,270 --> 00:11:15,319 Chris Brycki: separation from the rest of the world. They've felt a 219 00:11:15,320 --> 00:11:19,500 Chris Brycki: lot more confident investing in Australia than Europe, where there's 220 00:11:19,500 --> 00:11:23,280 Chris Brycki: obviously a lot of angst at the moment or even Asia because 221 00:11:23,280 --> 00:11:25,040 Chris Brycki: of the slow down that's happening in China. 222 00:11:25,520 --> 00:11:27,589 Sean Aylmer: You mentioned tech stocks there, and I should have brought 223 00:11:27,590 --> 00:11:29,370 Sean Aylmer: that up earlier in the conversation, but I always think 224 00:11:29,370 --> 00:11:32,500 Sean Aylmer: of them often as a US style product. What about 225 00:11:32,500 --> 00:11:33,840 Sean Aylmer: tech stocks for the next little bit? 226 00:11:34,610 --> 00:11:37,120 Chris Brycki: Well, tech stocks have become very volatile since the start 227 00:11:37,120 --> 00:11:41,280 Chris Brycki: of the year, really because more than any other sector, interest rates, 228 00:11:41,580 --> 00:11:44,929 Chris Brycki: and people I don't think understand this well enough, interest rates 229 00:11:44,929 --> 00:11:48,300 Chris Brycki: have an enormous impact on the valuation of tech companies. 230 00:11:48,670 --> 00:11:51,100 Chris Brycki: If you think about a tech company, they're generally companies 231 00:11:51,100 --> 00:11:54,400 Chris Brycki: with a lot of growth and therefore when the market 232 00:11:54,400 --> 00:11:56,800 Chris Brycki: is trying to value them, the cash flows that they're 233 00:11:56,800 --> 00:11:59,270 Chris Brycki: earning well into the future have become a big part 234 00:11:59,270 --> 00:12:02,760 Chris Brycki: of that valuation. So for a high growth company, the 235 00:12:02,850 --> 00:12:05,640 Chris Brycki: terminal value of their valuation, which is basically the cash 236 00:12:05,640 --> 00:12:08,220 Chris Brycki: flows well into the future, might account for 90% of 237 00:12:08,750 --> 00:12:11,530 Chris Brycki: the whole business value. So if that value is getting 238 00:12:11,530 --> 00:12:14,960 Chris Brycki: eroded because of inflation or higher interest rates, it can really 239 00:12:14,960 --> 00:12:18,110 Chris Brycki: pull down the valuation of growth stocks. And that's what 240 00:12:18,110 --> 00:12:20,620 Chris Brycki: we've seen in the NASDAQ in the US since the 241 00:12:20,620 --> 00:12:22,670 Chris Brycki: start of the year. I think at one point the 242 00:12:22,670 --> 00:12:25,479 Chris Brycki: NASDAQ was down 23% or so when it's had a 243 00:12:25,480 --> 00:12:27,929 Chris Brycki: bit of a bounce off the lows, but the market's 244 00:12:27,929 --> 00:12:31,980 Chris Brycki: trying to grapple with what interest rates, it could be 245 00:12:31,980 --> 00:12:34,370 Chris Brycki: two or 3% higher in a couple of years could 246 00:12:34,370 --> 00:12:38,089 Chris Brycki: mean for valuations. So we're definitely in an environment at 247 00:12:38,090 --> 00:12:41,459 Chris Brycki: the moment where the market isn't valuing high growth and 248 00:12:41,460 --> 00:12:46,250 Chris Brycki: is preferring to value steady cash flows and the ability 249 00:12:46,250 --> 00:12:47,630 Chris Brycki: to protect against inflation. 250 00:12:48,120 --> 00:12:49,940 Sean Aylmer: Chris, thank you for talking to Fear and Greed. 251 00:12:50,450 --> 00:12:51,670 Chris Brycki: My pleasure. Thanks for having me on. 252 00:12:52,290 --> 00:12:54,980 Sean Aylmer: That was Chris Brycki, founder and CEO of online investment 253 00:12:55,059 --> 00:12:58,470 Sean Aylmer: advisor, Stockspot. This is the Fear and Greed daily interview. Join 254 00:12:58,470 --> 00:13:00,650 Sean Aylmer: us every morning for the full episode of Fear and 255 00:13:00,650 --> 00:13:04,530 Sean Aylmer: Greed, Australia's most popular business podcast. I'm Sean Aylmer, enjoy 256 00:13:04,530 --> 00:13:04,900 Sean Aylmer: your day.