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Speaker 1: Welcome to Fear and Greed Q and A where we

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Speaker 1: ask and answer questions about business, investing, economics, politics and more.

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Speaker 1: I'm sure, ailman, the local share market is a little

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Speaker 1: volatile right now. In the last week we've seen big

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Speaker 1: share price jumps for some very large companies come off

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Speaker 1: Bank and Z. For example, i am P fell twenty

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Speaker 1: six percent on its results last week. Shipbuilder Ostill tumbled

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Speaker 1: twenty three percent on Friday, then rebounded twenty percent yesterday.

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Speaker 1: At the same time, the tech sect has been pummeled

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Speaker 1: over AI fears, only to recover then drop them recover again.

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Speaker 1: What to make of it all? This is general information

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Speaker 1: only and you should seek professional advice Taylor to your

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Speaker 1: circumstances before making decisions. Lachland Halloway is the equity market

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Speaker 1: strategist at morning Star. Lachland, welcome back to Fear and Greed.

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Speaker 2: Thanks for having me.

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Speaker 1: What do you make of the results season so far?

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Speaker 3: Well, volatility is back. As you alluded to, that was

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Speaker 3: a theme that was absolutely with us. Last August. We'd

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Speaker 3: seen the most volatile earning season in terms of share

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Speaker 3: price movements on the day since at least COVID and

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Speaker 3: the initial week or weeks of February twenty twenty six,

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Speaker 3: we see that trend repeating again. Look what that's down to.

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Speaker 3: Maybe it's ago trading or prop shops or passive buying.

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Speaker 3: I don't know, but it seems to be very much

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Speaker 3: a feature, an accelerating feature in equity markets. So investors

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Speaker 3: have to, I suppose, get used to that and try

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Speaker 3: and use that to find opportunities rather than being to

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Speaker 3: panicked buy it.

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Speaker 2: Over All, the.

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Speaker 3: Results themselves, again very early days, they look okay. We've

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Speaker 3: probably made a few less upgrades than we normally would

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Speaker 3: by this point in earning season, but generally speaking, things

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Speaker 3: are looking reasonable.

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Speaker 2: With the caveat that this is early days.

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Speaker 1: Yet, do some of the better results tend to come

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Speaker 1: out earlier or is it more a case the worst

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Speaker 1: results come out late but in the first couple of weeks.

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Speaker 1: It's just it is what it is.

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Speaker 2: I think that's probably generally true.

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Speaker 3: We often see the bigger swings when you have companies,

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Speaker 3: say postponing to the last week or the last day

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Speaker 3: of God forbid.

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Speaker 2: Beyond earning season. That's when things really get harry.

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Speaker 3: I think that's generally true, and what we've seen so

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Speaker 3: far though, is that we've where we're getting big market

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Speaker 3: reactions to early blue chip company results, which again I

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Speaker 3: think we flagged that last August and we saw James

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Speaker 3: Hardy back then CSL Wireworth having you know, historic share

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Speaker 3: price falls, and now we're getting that again this season

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Speaker 3: with more blue chip companies Cocklear, our CSL again, Promticus,

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Speaker 3: the rocket ship. So I think that seems to be

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Speaker 3: just a just a new reality we have to contend

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Speaker 3: with that things are volatile again. I think it creates

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Speaker 3: more opportunities than usual because when something drops thirty percent,

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Speaker 3: you you know to think that yesterday this thing is

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Speaker 3: worth to say it's worth yesterday, has this business's outlook,

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Speaker 3: its long run cash flow has really been impaired thirty

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Speaker 3: percent forever. That's kind of what you've got to believe.

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Speaker 3: So I think the marks getting more short term issed.

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Speaker 3: But if you're a long to invest that that's probably

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Speaker 3: a good thing.

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Speaker 1: So I mean, take Ostal, and I'm not talking about

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Speaker 1: the I mean, we can talk about the shipbuilder if

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Speaker 1: we want, but that's not my point. I mean it

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Speaker 1: came and it said that it had double counted a contract,

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Speaker 1: it had its share price fell nearly thirty percent. The

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Speaker 1: next trading day, which was yesterday, it jumped twenty percent.

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Speaker 1: It's a bit irrational, isn't it.

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Speaker 2: I think so.

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Speaker 3: I mean, look, sometimes you genuinely do get one update

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Speaker 3: that massively changes the thesis on a stock and the outlook,

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Speaker 3: and that happens sometimes, but not probably to the frequency

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Speaker 3: that's happening today. And I think, particularly on the downside,

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Speaker 3: is what's maybe even more remarkable. Yeah, it's volatile both ways,

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Speaker 3: but some of the downward moves in in share prices,

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Speaker 3: but on a miss like you know, an EPs census

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Speaker 3: miss or earnings down radar are enormous. And not only

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Speaker 3: do I have to assume that you know that this

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Speaker 3: year is going to miss by say twenty percent in

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Speaker 3: the case of a cochlear a CSL, but that every

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Speaker 3: other year beyond that is going to be twenty percent

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Speaker 3: old and not what you'd expected before this, And that's

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Speaker 3: kind of hard to grasp sometimes. And I think that again,

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Speaker 3: it's just this the markets seems a bit jittery. It's

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Speaker 3: kind of just act first and ask questions later. That's

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Speaker 3: what we're seeing now, and I would absolutely expect that

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Speaker 3: continue for the remaining two weeks.

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Speaker 2: Of reporting season.

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Speaker 1: If you look look at some of the sectors, So

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Speaker 1: the banks, we had Commonwealth Bank the big one last

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Speaker 1: week it had its half year result. We also had

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Speaker 1: another couple of banks giving quarterly results. Ac Quari groups

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Speaker 1: done very well too with the quarterly What is it

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Speaker 1: about that sector? I mean, it seems like people were

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Speaker 1: looking for an excuse to buy Commonwealth Bank and they

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Speaker 1: found it and it's done very well in last week

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Speaker 1: or so. What is it about that sector given the

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Speaker 1: interest rate environment that people like?

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Speaker 3: I mean maybe as a general comment on the banks,

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Speaker 3: they look like a safe pair of hands, and generally

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Speaker 3: they are. I mean, the four majors are very high

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Speaker 3: quality businesses, and particularly CBA being the best of the

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Speaker 3: bunch with the best Roe and all I mean the

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Speaker 3: Middle East Macquarie seems to be close that gap pretty quickly.

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Speaker 3: But nonetheless, you know they are when everything else looks

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Speaker 3: scary and volatile. Maybe investors like the comfort and the

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Speaker 3: safety of those businesses. What you're paying for that safety

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Speaker 3: and comfort is an ongoing puzzle for markets. You know,

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Speaker 3: twenty six times earnings for a business like Commonwealth Bank

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Speaker 3: that's growing at something like six percent is not usually

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Speaker 3: what you would pay for that sort of earning stream

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Speaker 3: and that sort of earnings outlook. But I suppose some

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Speaker 3: investors say, well, I'd rather have the safety there than

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Speaker 3: perhaps the better value but inherently riskier stocks. Not the

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Speaker 3: way we see it, but I suppose that's the way

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Speaker 3: some investors are thinking.

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Speaker 1: What I mean, it is early, so we've got to

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Speaker 1: keep that in mind. Is AI and AI discussion coming

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Speaker 1: out in these investor calls very much?

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Speaker 3: But look, I think yes, they are, particularly for the

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Speaker 3: CEOs that have to defend their business against the threat

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Speaker 3: of AI disruption or destruction. We've seen that for a

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Speaker 3: few of the software businesses.

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Speaker 2: On one side, you've got to whom is it a threat?

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Speaker 3: But then in the side you've got, well, who's an

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Speaker 3: opportunity for like the banks having argue that okay, they're

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Speaker 3: getting costs down and so forth. I think the main

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Speaker 3: focus this reporting season has been on where are the

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Speaker 3: threats in AI and particularly in the software sector. That's

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Speaker 3: been it's been with us now for a few months

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Speaker 3: since late last year. It really really accelerated in the

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Speaker 3: last few weeks when we saw anthropics start to bring

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Speaker 3: out those specific tools, you know, those vertical tools for

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Speaker 3: legal work and financial work, and everyone us spook that

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Speaker 3: this is going to totally change. You know, software as

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Speaker 3: a service has a business model watch as individual companies.

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Speaker 3: That's that's remarkable, and we have a few things to

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Speaker 3: say on that. But you know, that's the AI stories is,

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Speaker 3: It's got so many layers to it, and I think

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Speaker 3: right now it's just we just you know, they're arguing

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Speaker 3: winners and losers out of this. For the market seems

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Speaker 3: to be saying let's just sell everything that seems to

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Speaker 3: be even tangentially linked to software, which is which we

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Speaker 3: think successive in many cases.

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Speaker 1: Do you I mean so insurers were another one that

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Speaker 1: was sold off last week. I think, is it possible

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Speaker 1: to work out whether you know, QBE or Sun Corp

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Speaker 1: or IAG is going to benefit because you can imagine

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Speaker 1: it would benefit or lose out, is it actually can

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Speaker 1: you work it out?

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Speaker 2: At this point? I think it's very early days.

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Speaker 3: And I think we don't want to dismiss the threat

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Speaker 3: of AI as a disruptor because it absolutely is for

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Speaker 3: some businesses, and it's probably existential. You know, if you're

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Speaker 3: a you know, a simple project management software business and

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Speaker 3: you have one product and you serve fairly simple customers

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Speaker 3: and you're not very integrated, you may.

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Speaker 2: Well absolutely be killed by vibe coding, you.

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Speaker 3: Know, with these other businesses with QB or the insurers

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Speaker 3: in general, look obviously this opportunity on the cost side

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Speaker 3: and make yourself more efficient. I think the question is

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Speaker 3: do you actually have the pricing power to hold onto

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Speaker 3: any of those gains and business is where they don't

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Speaker 3: have a mode or pricing power. Will you think most

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Speaker 3: hats can get passed on to the customer. I don't

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Speaker 3: think they're going to be you know, disintermediated by AI

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Speaker 3: as a business model, but I'm not sure they'll actually

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Speaker 3: keep all of the benefits either of any cost out

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Speaker 3: because it's competitive industry and we don't see a lot

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Speaker 3: of modes there, so I'm not sure that that's you know,

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Speaker 3: we're not really looking at big changes on that side.

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Speaker 3: On the other side, again, on the threat side, though,

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Speaker 3: if you are you know, really integrated at the core

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Speaker 3: of your customers, your software business is deeply embedded, you

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Speaker 3: have switching costs and network effects, I think it's much

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Speaker 3: harder for someone to vibe code an alternative to your

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Speaker 3: software offering zero wise tech technology one come to mind

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Speaker 3: in that class of high quality.

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Speaker 1: Software business I mean, just go I mean because tech

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Speaker 1: has bounced, it bounced yesterday, but it really has been

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Speaker 1: under fire. Do you think that's two? I mean you

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Speaker 1: mentioned three high quality businesses there. They're not going to

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Speaker 1: fall over?

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Speaker 2: Yeah, I don't think.

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Speaker 3: And implicitly the market's saying, you know, it's still ascribing

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Speaker 3: value to taking zero. It's not saying they're going to zero,

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Speaker 3: no pun intended. I think the thing with say, you know,

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Speaker 3: with them coming back and you know, dipping and diving

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Speaker 3: in all of the places that we're all. I think

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Speaker 3: everyone's trying to figure this out. To some extent, we

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Speaker 3: don't really know exactly how it plays out. It would

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Speaker 3: be humorous to say we know for sure who's going

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Speaker 3: to be the winner and the loser. But the framework

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Speaker 3: we take to it is the mote framework, which businesses

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Speaker 3: have core attributes that seem like they would be harder

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Speaker 3: to disrupt from a challenger, and as I said, things

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Speaker 3: like a big switching cost that will be one and

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Speaker 3: network effect where it's not really the software that's the

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Speaker 3: main main attraction, it's actually the network.

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Speaker 2: Of people that are using your software.

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Speaker 3: A classic example would be zero, where you know, all

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Speaker 3: the accountants are on zero because zero gives it to

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Speaker 3: them for free, and so that means that all the

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Speaker 3: customers are encouraged to go on to zero, and then

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Speaker 3: when more costs are on zero, then more accountants go

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Speaker 3: on zero, and then it's just this sort of perpetuating cycle.

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Speaker 3: And that's a nice one to protect you from from competition.

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Speaker 2: Proprietary data as.

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Speaker 3: Well, would be another one that's you know, might insulate

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Speaker 3: you to some degree because AI is trained on public data.

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Speaker 3: So those are the kind of features we're looking for,

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Speaker 3: and we're trying to pass out who were the potential

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Speaker 3: winners or at least the people that can defend themselves

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Speaker 3: versus the losers.

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Speaker 1: As a strategist, do you like earning season or is

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Speaker 1: it too busy?

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Speaker 2: Ah?

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Speaker 3: Look, it's busy, But I suppose what would be the

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Speaker 3: point in being a public markets investor if you've never

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Speaker 3: got an information about the companies? It won't so I

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Speaker 3: guess it's I suppose the necessary evil perhaps been nicely

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Speaker 3: they spread it across the year, but it's not what

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Speaker 3: we live in. So it's better information than not.

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Speaker 1: Lock And thank you for talking to Fearing greed.

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Speaker 2: Thanks for having me again.

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Speaker 1: Schel Now's the Morning Start. Equity market strategist at Lachlan

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Speaker 1: Hallaway just reminded to seek professional advice before making investment decisions.

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Speaker 1: I'm Sean Elmer and this is fearing greed Q one day,

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Speaker 1: do think of anything