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Speaker 1: Welcome to the Fear and Greed summer series. I'm sure, Ailman.

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Speaker 1: During the past four months the local share market has

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Speaker 1: generally underformed other major indices. So as we head into

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Speaker 1: twenty twenty six, does that mean the ASEX two hundred

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Speaker 1: is a buying opportunity? Lachland Halloway is an 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 Holley Michean.

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Speaker 1: In morning Star's latest Market Outlook report, you say Australian

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Speaker 1: equeries are now fairly valued. That's exactly not what we'd

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Speaker 1: throw in the front page of a newspaper or on

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Speaker 1: a website. Lachland, But are you sort of saying that

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Speaker 1: it's time for investors to pay a bit of attention

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Speaker 1: to the ASEX two hundred.

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Speaker 3: I think so yar look fairly valued might not be

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Speaker 3: a complete show stopper as a headline, but I think,

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Speaker 3: in contrast I've been saying to you over twenty twenty five,

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Speaker 3: I think it is a meaningful shift. We've seen Ozzy

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Speaker 3: equities as overvalued for most of twenty twenty five, notwithstanding

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Speaker 3: the cell off during April Liberation Day. We had that

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Speaker 3: roaring ball market out of that, and equities we thought

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Speaker 3: got quite divorced from the fundamentals. Now, this sort of

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Speaker 3: late twenty twenty five sell off where the banks st

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Speaker 3: are to come off the boil, which probably is justified

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Speaker 3: by the fundamental side of the picture, plus a bit

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Speaker 3: of the heat that's come out of AI and it's

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Speaker 3: billed over into our market, has brought things back closer

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Speaker 3: to where we think the fundamental support lies. So OSSI

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Speaker 3: equity is fairly valued for one of the few times

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Speaker 3: of twenty twenty five, which is a good starting point

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Speaker 3: for investors versus where they were even in sort of

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Speaker 3: August twenty twenty five, where things look pretty expensive.

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Speaker 1: Okay, then the obvious question is where are the opportunities

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Speaker 1: on the AX right now?

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Speaker 2: Yeah.

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Speaker 3: Look, energy has and still is one of the more

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Speaker 3: attractively priced sectors we see on the ASX.

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Speaker 2: I think a few things to say about that.

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Speaker 3: Obviously, the energy transition has sort of cast bit of

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Speaker 3: cloud over some of the big hydrocarproduce as late Woodside

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Speaker 3: and Santos.

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Speaker 2: It has the entire energy sector.

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Speaker 3: I think that when not so, Look is hydrocarbons are

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Speaker 3: going away? But I don't think as as quickly as

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Speaker 3: the share prices of these big energy majors imply. Gas,

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Speaker 3: particularly which is the main game for the two Aussie heavyweights,

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Speaker 3: is also I think has a reasonable outlook. We're expecting

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Speaker 3: pretty significant growth and gas as it replaces you know,

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Speaker 3: legacy coal fire power generations. So the demand picture looks

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Speaker 3: okay there on the pricing side, you know, we don't

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Speaker 3: think you know, oil at about sixty five dollars a

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Speaker 3: barrow long term is about where we see it. We're

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Speaker 3: expecting modest in a couple percentage point a year demand

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Speaker 3: declines in oil, but that has to be backfilled because

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Speaker 3: you get the natural decline in oil fields too at

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Speaker 3: the same time, and that's not going to happen unless

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Speaker 3: you have an incentive price.

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Speaker 2: So sixty five bucks a bow about is closest. Today's

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Speaker 2: price looks about reasonable.

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Speaker 3: And those assumptions, given where the multiples of these you know,

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Speaker 3: woodside centers are trading rock bottom applies on most growth.

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Speaker 2: We think that's too verish.

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Speaker 1: What about the flip side sectors that look expensive still,

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Speaker 1: we're the banks particularly.

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Speaker 3: Yeah, the banks have to call them out as the

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Speaker 3: most overvalued sector still. That's been the case for most

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Speaker 3: of twenty twenty five, despite the fact that.

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Speaker 2: Generally speaking, they've come off the boil.

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Speaker 3: CBA, you know, it's falling about twenty percent in the

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Speaker 3: wake of its earnings result bear market territory. Would you

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Speaker 3: believe from one hundred and ninety dollars a share that's

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Speaker 3: probably healthy, I think given how far that stock could run.

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Speaker 3: You know, mid to low single digit earnings growth does

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Speaker 3: not usually justify a pev of thirty times, and if

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Speaker 3: you're paying a price to book multiple I think four times.

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Speaker 3: When CBO is at its peak, you really have to

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Speaker 3: expect very very very strong terms and equity, which what

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Speaker 3: isn't happening today and we don't expect happen in the future.

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Speaker 3: It's a great business, don't get me wrong, but not

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Speaker 3: not the sort of multiples you know at mag seven

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Speaker 3: light multiples that it was trading, So that still looks

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Speaker 3: expensive to us generally, although we are seeing more opportunities

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Speaker 3: as as as prices have come down across the market

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Speaker 3: across the ASX, which as I said, generally good for

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Speaker 3: investors who are who are looking for opportunities.

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Speaker 1: So broadly, going into the next year or so, are

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Speaker 1: you expecting the market to rise. Where are the risks

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Speaker 1: that you're that you're keeping an eye out for.

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Speaker 3: Yeah, look, I think the the on expecting it to rise,

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Speaker 3: look sort of it's hard to make a one year

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Speaker 3: ahead prediction, and I'd be cautious about getting getting into

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Speaker 3: that game, but sort of thinking a bit longer term,

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Speaker 3: sort of you know, maybe three to five years.

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Speaker 2: Valuations are a pretty good guide.

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Speaker 3: Of returns, and as I said, right now, as the

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Speaker 3: equities look about fairly valued, so implicitly we're saying you

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Speaker 3: can probably expect to sort of average return on Australian

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Speaker 3: equities over the next three years, let's say nine percent

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Speaker 3: or so total returns, which is again that's not that's

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Speaker 3: not anything like we've seen in the last few years,

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Speaker 3: very heady returns, but but it's a better style point

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Speaker 3: than we had for most of twenty twenty five. So

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Speaker 3: I think that's generally a good thing. The risks, I

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Speaker 3: mean as sort of the known unknowns. You know, we

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Speaker 3: know that inflation is going to be a consideration this year.

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Speaker 3: Which direction falls exactly, I think is a bit of

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Speaker 3: you know, this is the uncertainty monetary policy too as well.

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Speaker 3: But I think we've said in passing the podcast and

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Speaker 3: courtious about getting too fixated or on whether at Central

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Speaker 3: Bank mightin move this month or the next. It's tinkering

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Speaker 3: around the ages is probably not the main game for

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Speaker 3: equity investors. So I think those are the two things.

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Speaker 3: How AI and how investors perceive AI and XT to

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Speaker 3: you will almost certainly be a big part of the

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Speaker 3: story too.

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Speaker 1: Laqulin, thank you for talking to Fear and Greed summer series.

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Speaker 2: Thanks for having me se on.

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Speaker 1: That was Lockerwann Halloway, equity market strategist at Morning Star

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Speaker 1: Fear and Greed. It's not a financial advice podcast. If

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Speaker 1: you want to invest, we recommend you visit a financial

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Speaker 1: advisor who can tailor investments to your needs. Don't forget

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Speaker 1: tip follow on the podcast. Youw episodes every day during

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Speaker 1: our summer series. I'm sure Nayelma and this is Fear

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Speaker 1: and Greed