Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirby, the editor at The Australian. Welcome aboard everybody,
Speaker 1: and welcome to the first in our short series of
Speaker 1: special summer editions. And the idea of the series is
Speaker 1: to give you a perfect launching pad for your investment
Speaker 1: ambitions in the year ahead. Now, over the coming episodes,
Speaker 1: we're going to talk about shares, We're going to talk
Speaker 1: about property, we're going to talk about all aspects of
Speaker 1: investing in twenty twenty five. Today we launch the series
Speaker 1: with the first of a two part episode on your
Speaker 1: Shares in twenty twenty five. We're going to talk today
Speaker 1: about share markets, the actual outlook for the wider markets,
Speaker 1: the ASIX, the SMP, then NASDAC next week we'll talk
Speaker 1: about individual shares. My guest today is Mark Jokum. He
Speaker 1: is the investment strategist at global x ETFs.
Speaker 2: How are you Mark? Doing really well?
Speaker 3: James, Thanks for having me on the show. I always
Speaker 3: enjoy our chats.
Speaker 1: Thanks for volunteering for this one. This is the hot seat, Mark,
Speaker 1: This is the one for people will ring you and
Speaker 1: said you were on that show and you said such
Speaker 1: and such, what's going to happen, So we put that
Speaker 1: provisor out there.
Speaker 2: That no one knows what's going to happen.
Speaker 1: But let's take a look systematically. I think if we might,
Speaker 1: we might start with the ASEX a pretty good year
Speaker 1: for our market this year. We can always rely on
Speaker 1: our dividend need which comes in at a little over
Speaker 1: four percent, and that does make the AX a more
Speaker 1: stable market, but unfortunately it seems to be a slower
Speaker 1: dollar market at recent years.
Speaker 2: Mark, Is that a fair thing to say?
Speaker 3: Yeah, I think that's quite fair to say, James. We've
Speaker 3: seen the ASX performed well for the year. It's after
Speaker 3: just over sixteen percent year today, but a lot of
Speaker 3: that has come from the income site. In Australia, we
Speaker 3: have been lucky to have a high dividend yield relative
Speaker 3: to the broader developed markets. That being said, the dividen
Speaker 3: yield has actually fallen to some of the lowest levels
Speaker 3: we've seen in the last few years, so people familiar
Speaker 3: with the four to five percent may have to get
Speaker 3: used to maybe the three to four percent range. And
Speaker 3: if you look in terms of what's really been driving
Speaker 3: the Australian share market, it hasn't been the earnings growth,
Speaker 3: it's been the price that investors have been willing to
Speaker 3: pay for some of these companies, the banks who have
Speaker 3: been on an absolute tear this year, and given they
Speaker 3: performed well, they've got relatively high dividen yields. Next year,
Speaker 3: when we're looking into twenty twenty five, earnings growth might
Speaker 3: be relatively muted and we might see the multiple that
Speaker 3: people are willing to pay for ASEX stocks for which
Speaker 3: is why a lot of consensus is predicting that the
Speaker 3: AX will be relatively flat over the next twelve months.
Speaker 3: But like you said, that cushion or buffer of what
Speaker 3: investors been Ossie's love income, particularly trusted forms of income,
Speaker 3: may see a flight of capital come into the Australian
Speaker 3: market as well.
Speaker 1: So looking at twenty twenty four, when we say at
Speaker 1: sixteen percent or so they are there, about three to
Speaker 1: four percent of that was dividends and the rest was
Speaker 1: price growth. So if you say that when people talk
Speaker 1: about next year have been flat, if twenty twenty five
Speaker 1: was flat, that would mean that the ASEX is more
Speaker 1: or less where it is at the moment on the
Speaker 1: eight thousand mark. But we still get that three or
Speaker 1: four percent in view, so it's flat price wise, but
Speaker 1: for us there's always the dividend. Do we pay too
Speaker 1: high a price as a market for that four percent
Speaker 1: of deal or as you say, it's even less than that.
Speaker 3: Now, yeah, sometimes some people might say that we're paying
Speaker 3: a little bit high. I mean, if you look at
Speaker 3: some of our Australian banks, they are some of the
Speaker 3: most expensive banks in the world, trading at nineteen times earnings.
Speaker 3: And when you think about the equity risk premium or
Speaker 3: how much willing to risk to invest in shares over bonds,
Speaker 3: when you're looking at some of the risk free rates
Speaker 3: or some of the bond neil that some of these
Speaker 3: big banks are paying same, some may argue, why am
Speaker 3: I taking such a higher risk for a lower return profile.
Speaker 3: Banks themselves have been a fantastic source of dividends, fantastic
Speaker 3: source of return. Funnily enough, James, most of the banks
Speaker 3: returns from a capital perspectives, their price returns have actually
Speaker 3: been negative over the past decade, with the exception of
Speaker 3: a few like Macquarie and CBA. So with an environment
Speaker 3: that we're heading in lower interest rates, we might have
Speaker 3: a bit of net interest margin pressures of some of
Speaker 3: the banks, and these dividends have risen, but the payout
Speaker 3: ratios of these banks are providing have also risen as well.
Speaker 3: So for a lot of investors they may think, well,
Speaker 3: how sustainable are these dividends that are going to be
Speaker 3: paid for the banks? If you've had pout ratios rise
Speaker 3: from around about seventy percent to closer to eighty percent.
Speaker 3: So overall, even though you know bank earnings went backwards
Speaker 3: really in twenty twenty four, there could be expected of
Speaker 3: rebound next year. That's why people have bit up these
Speaker 3: banks a lot. So are we paying too much potentially?
Speaker 3: But overall there's still is a lot of from an
Speaker 3: income perspective, a lot of attraction within the Australian banks.
Speaker 1: So the powers that be, the Brain's Trust, for want
Speaker 1: of a better word, are saying that they don't think
Speaker 1: Australian share markets will do much in twenty twenty five.
Speaker 1: They have a variety of reasons for that. One of
Speaker 1: them is pure mathematics that the earnings growth isn't there,
Speaker 1: and I imagine there's also some skepticism that we could
Speaker 1: repeat what we did in twenty twenty four. Now here's
Speaker 1: the thing, Mark the market ASEX performance, that terrific performance
Speaker 1: of sixteen percent or so, which is double what you
Speaker 1: might reasonably expect on an average year.
Speaker 3: Yeah. I mean, if you look at historically since the
Speaker 3: early nineteen hundreds, Australian share market is done around nine
Speaker 3: or ten percent, so that is a little bit above average.
Speaker 2: It's quite a bit above average.
Speaker 1: So all these people who are telling us that the
Speaker 1: market won't do anything in twenty twenty five and could
Speaker 1: finish the year of where it is now, these same
Speaker 1: people all said sell banks, and the banks are up
Speaker 1: above thirty percent. It druwed the whole market. They turned
Speaker 1: the whole market. It's the reason we did the sixteen.
Speaker 1: It's the key reason we did the sixteen. So should
Speaker 1: we listened to them?
Speaker 3: Well, I guess this is too earlier, point James, around
Speaker 3: the perils of forecasting. There always seems to be some
Speaker 3: consistency that emerges with these forecasts. There's a tendency for
Speaker 3: large institutions to cluster, particularly around what consensus are thinking
Speaker 3: or rounded figures, and there's generally either unfounded optimism right
Speaker 3: or pessimism within asses.
Speaker 1: But they feel comfortable if they all say the same thing,
Speaker 1: then nobody stands out as being particularly hopeless.
Speaker 3: Well yeah, again, the analogy is, you know, back in
Speaker 3: the ninety nineties, no one got fired for recommending IBM,
Speaker 3: So yeah, there's this essence of job security as well.
Speaker 3: But I always am on the believer that short term
Speaker 3: forecasts have little relevance. It's really about the long term,
Speaker 3: but also around the earnings growth. So even though a
Speaker 3: lot of big banks have said to sell on banks, well,
Speaker 3: it's proven that it's actually been a bit of a
Speaker 3: bad strategy going into this year. It's really about how
Speaker 3: you want to position your portfolios, whether you want to
Speaker 3: take certain sectoral bets or have an overarching view of
Speaker 3: the entire market which encompasses a lot of different indices.
Speaker 3: And from the Australian market, banks have absolutely smashed the
Speaker 3: lights out compared to the miners and resources. There may
Speaker 3: be some sluggish growth coming out of the Chinese demand
Speaker 3: which could be a bit of a headwind for some
Speaker 3: of these companies, but a lot of people are thinking
Speaker 3: there could be mean reversion and some of the miners
Speaker 3: and resources could drawback some of our performance. So overall,
Speaker 3: it still is a reason to be invested into shares,
Speaker 3: particularly the Australian market, but in terms of which sectors
Speaker 3: are going to dominate, very hard to say leading into
Speaker 3: twenty twenty five.
Speaker 1: Okay, now those forecasts, the census being that the market
Speaker 1: does very little price plays, it's so much variation. Are
Speaker 1: there extremes that either around other peoples the market's going
Speaker 1: to drop twenty percent or twenty percent?
Speaker 2: Is there anyone saying that?
Speaker 3: No one's incredibly bearish. I have seen some forecasts from
Speaker 3: some of the big US investment banks that have forecasted
Speaker 3: price target to be around seventy nine hundred, so that
Speaker 3: does imply a little bit of before of a few percent.
Speaker 3: But there's no one who's been incredibly bullish either, which
Speaker 3: is why some consensus has been around that eighty four
Speaker 3: eighty five hundred target, which as of recording today is
Speaker 3: relatively flat, a little bit different to some of our
Speaker 3: US counterparts, where we have seen a little bit more
Speaker 3: dispersion in some of the price targets too.
Speaker 1: And looking inside the sectors then you know, I mean
Speaker 1: our market is very much banks sort of sense that
Speaker 1: banks won't run in turn twenty five and miners, I mean, yes,
Speaker 1: there's always issues around China, but I see iron ore
Speaker 1: again cruising over the one hundred dollars a ton mark,
Speaker 1: signaling robust health. You to have to suggest for our
Speaker 1: miners who are very much iron oral miners, and the
Speaker 1: big stocks even more so, so, is there only sort
Speaker 1: of sectoral forecast.
Speaker 3: What's Yeah, if you look at the underlying earnings of
Speaker 3: some of the companies, there probably is a bit more
Speaker 3: upside within some of the targets for some of the
Speaker 3: miners versus the banks, which are expected to decline a
Speaker 3: little bit. I think most of the analysts have cell
Speaker 3: side ratings or either a whole position on some of
Speaker 3: the banks versus the miners where there is a bit
Speaker 3: more of a buying or an overweight. But like you said,
Speaker 3: iron ore prices are relatively subdubed at the moment around
Speaker 3: one hundred dollars a ton, and that's on the back
Speaker 3: of a lot of the It's really a story about
Speaker 3: China and what that demand's going to do relative to
Speaker 3: the Australian economy. But you've still got a diverse set
Speaker 3: of miners who are operating in different areas. Outside of
Speaker 3: iron or copper has been incredibly popular in terms of
Speaker 3: its electrification and application towards artificial intelligence. There may be
Speaker 3: a turnaround in the lithium market leading into an election
Speaker 3: year where we've got the opposition party who's a lot
Speaker 3: more bullish on sectors like uranium. That could play a part.
Speaker 3: For uranium mining, Australia's got about a third of the
Speaker 3: reserves where it comes to uranium, so there's other vectors
Speaker 3: that people could be looking at as well. So far
Speaker 3: this year, technology has been one of the best performing
Speaker 3: underlying sectors here today, followed by financials, whereas some of
Speaker 3: the worst performing sectors have actually been energy and materials
Speaker 3: so far. So there could be a little bit of
Speaker 3: mean reversion, but that's where it makes sense to own
Speaker 3: a broad market. Or let's say you actually don't want
Speaker 3: to own the banks or some of the miners, and
Speaker 3: you want to play more on the industrials, the tech side,
Speaker 3: or really the other half of the market. You could
Speaker 3: look at funds that actually exclude both banks and miners
Speaker 3: for your addie allocation. So various ways to play it
Speaker 3: based on your sector positioning next year.
Speaker 1: As an investment strategist, are you a believer in reversion
Speaker 1: to the me Do you think that what did you
Speaker 1: say ten percent every year on the Australian's share of
Speaker 1: market since nineteen hundred. Do you think like that's it?
Speaker 1: It's always ten percent.
Speaker 3: I am a believer in mean reversion, but not over
Speaker 3: the short term, because things can run hot for a
Speaker 3: long period of time, like we've seen with the whole
Speaker 3: idea of growth versus value. Everyone is saying that value
Speaker 3: stocks and the value factor has to eventually come back,
Speaker 3: but they can go on wild rise of our performance
Speaker 3: for a long period of time. So eventually there will
Speaker 3: be reversion. But in terms of calling that, and I
Speaker 3: think that's a tough thing. With predictions. It's not only
Speaker 3: do you have to get the call right on which
Speaker 3: sector you want to be positioned in or which stock,
Speaker 3: but you have to get the timing right around when
Speaker 3: to buy and also the timing right of when to sell,
Speaker 3: which is a trifecta or a very hard recipe for
Speaker 3: investors to do. So to answer your question, I am
Speaker 3: a believer in mean reversion, but when it will come,
Speaker 3: no one really knows that.
Speaker 1: I've had some deeply frustrated value investors on the show,
Speaker 1: and they really thought that they had come in twenty
Speaker 1: twenty four. They really thought it was all going to
Speaker 1: follow to Jason, it didn't be our performance in the
Speaker 1: market Internation twenty four Whatus Technology and Finance stops suggest
Speaker 1: that at all we take a break and look at
Speaker 1: an extreme version of what we're saying, which is the
Speaker 1: US market, which of course is going to treat the
Speaker 1: world share market and it's going to dicteat our own
Speaker 1: ASX Market Internation twenty five. Back in a moment, Hello
Speaker 1: and welcome back to the Australian's Money Puzzled podcast. I'm
Speaker 1: James Kirby. I'm talking to Mark Jocum of Global XCTFS,
Speaker 1: and we are talking about what is going to happen
Speaker 1: in twenty twenty five on the share markets. Now, Mark,
Speaker 1: cast your mind back this time last year, people would
Speaker 1: have been saying, well, that was a very good year
Speaker 1: on the US market. You can't expect that ought to
Speaker 1: happen again. You can't expect subdued or modest ordinary earnings
Speaker 1: growth and terrific price appreciation.
Speaker 2: On the market.
Speaker 1: You can't expect Donald Trump to win again, good God,
Speaker 1: and have the whole Trump bump again. And of course
Speaker 1: it all came to pass. And just to top it off,
Speaker 1: you had the whole thematic excitement around a to the
Speaker 1: point that the world's biggest share is now Nvidia, which
Speaker 1: was virtually unknown I would say a year ago.
Speaker 2: So let's see.
Speaker 1: I think that was a very good approach for a
Speaker 1: listeners market. What we did there and what you did
Speaker 1: at the first segment of the show where you give
Speaker 1: an idea, because we have to have something to hang
Speaker 1: our hat on, and we're not saying we believe these forecasts.
Speaker 1: We're all smart enough to know the forecast. For forecasts,
Speaker 1: nobody knows the future. However, let's at least know what
Speaker 1: they are. So the contensus forecast for the AX was
Speaker 1: basically that the share prices will go nowhere and the
Speaker 1: dividends would come in and we might do three or
Speaker 1: four percent totally return.
Speaker 2: Now that's not the situation in the US. Tell us
Speaker 2: about what the US markets are looking like, what the
Speaker 2: forecasts are looking like.
Speaker 3: Very interesting market, And like you said, James, not many
Speaker 3: people would have expected the S and P five hundred,
Speaker 3: which is the I guess the benchmark that a lot
Speaker 3: of people refer to for US equities to have done
Speaker 3: so well on close to thirty percent for the year
Speaker 3: on the back of a great year for twenty twenty
Speaker 3: three that i'd had before, and looking into twenty twenty five,
Speaker 3: we've actually seen a lot more abolishness that continues within
Speaker 3: the US share market, and I think one of the
Speaker 3: reasons for that is the US share market is projected
Speaker 3: to drive most of the earnings growth versus some of
Speaker 3: the other markets. In Australia, you're relatively flat, maybe a
Speaker 3: few percent in terms of earnings growth, but companies in
Speaker 3: the SMV five hundred are expected to generate earning's growth
Speaker 3: of about twelve percent. So a lot of price targets
Speaker 3: for the US market at SP five hundred are hovering
Speaker 3: around sixty five hundred, which implies a bit about eight
Speaker 3: percent upside from where we are now, but you'd have
Speaker 3: a lot more divergence compared to the Australian market, where
Speaker 3: you have seen some banks being as bearish as around
Speaker 3: fifty eight hundred, so a little bit of a decline,
Speaker 3: whereas some banks being as bullish as reaching around seven
Speaker 3: thousand points, and we've just reached six thousand, which has
Speaker 3: been a record high. A lot of people are confused
Speaker 3: record highs, doesn't that mean it's due for a pullback,
Speaker 3: but the valuations are justified because a lot of this
Speaker 3: has been supported by stronger earnings growth from these underlying companies.
Speaker 3: And you mentioned before the likes of Nvidia and Apple.
Speaker 3: Funny enough, they are playing a bit of a tag
Speaker 3: between who's the most valuable company. Right now it's Apple,
Speaker 3: the next day it changes. So really really big earnings
Speaker 3: growth from a lot of these tech giants as well
Speaker 3: driving a lot of that US share market return.
Speaker 1: So even if it came to pass, and let's talk
Speaker 1: about that consensus this books is a consensus estimate or
Speaker 1: the price appreciation or the percentage increased would occur on
Speaker 1: US markets as represented by the S and P five hundred,
Speaker 1: and what the brokers are seeing is that they're expecting
Speaker 1: something in the order of eight percent for that market. Now,
Speaker 1: eight percent is perfectly solid, good return. However, a couple
Speaker 1: of things, it would be less than a third of
Speaker 1: the return this year they've been joined in the US.
Speaker 2: That's one thing.
Speaker 1: The second thing is that the dividend years, where we
Speaker 1: talked about. In Australia, you always for toically returned on three.
Speaker 2: To four percent for the dividends. You don't add on
Speaker 2: much in the US. Ad all what would you said
Speaker 2: to be added.
Speaker 3: On usually one to two percent for the US. A
Speaker 3: lot of the US companies reinvest in their growth, They
Speaker 3: spend a lot on capex, dividends, and income is not
Speaker 3: a big focus for US investors. That being said, there
Speaker 3: are ways to get income from the US by focusing
Speaker 3: on high dividend yielding sectors, whether it be industrials, telcos
Speaker 3: and other sectors. But if you look at the US index,
Speaker 3: predominant of it is in communications intech, and.
Speaker 1: Their high dividend would be like three or four percent,
Speaker 1: while our high dividend would be four and five percent,
Speaker 1: and then you get franking on top of that taking
Speaker 1: home six or seven. So there's the still competition on
Speaker 1: that front.
Speaker 2: Is there really exactly right?
Speaker 3: You get the aut attacks benefits of having exposure to
Speaker 3: high dividends in Australia, but it's really important James, that
Speaker 3: a lot of investors apply a total return approach to investing.
Speaker 3: You incorporate both the capital and the dividend side. So
Speaker 3: whilst the Australia market can definitely provide income and maybe
Speaker 3: that's where a lot of investors who are income orientator
Speaker 3: want to focus, there still is this huge market being
Speaker 3: the US, which is expected from an earning's perspective to
Speaker 3: grow close to double digits. You could be missing out
Speaker 3: on that capital side if you only focus on income.
Speaker 3: So we still have I guess from global access perspective
Speaker 3: of view that the US will continue to march on.
Speaker 3: They continue to be in this mid cycle expansionary phase.
Speaker 3: Considering that we've seen this renewed optimism from the US election,
Speaker 3: there's a bit of animal spirits in the air, bit
Speaker 3: of a risk on sentiment. Some of the key appointments
Speaker 3: from Trump seem to be very bullish for the market overall,
Speaker 3: and US companies they've got some of the biggest capitalist
Speaker 3: machines in the world. So a lot of people might think, well,
Speaker 3: I have to be involved in the megacap tech names
Speaker 3: to get those big returns, because that's where a lot
Speaker 3: of the returns have come. But funnily enough, the contribution
Speaker 3: of these magnificent seven names, the likes of Nvidia, Apple, Microsoft,
Speaker 3: has actually decreased in twenty twenty four. In twenty twenty three,
Speaker 3: they contributed close to two thirds of the total markets gained,
Speaker 3: whereas this year, James they've actually contributed around about half.
Speaker 2: Still a lot.
Speaker 3: Don't get me wrong, but you're starting to see a
Speaker 3: bit more of a potentially broadening of the concentration is
Speaker 3: more a feature than it is a bug of markets,
Speaker 3: because naturally there's only a handful of companies that drive
Speaker 3: the majority of total share holder returns. When you're seeing
Speaker 3: this broadening out of the markets, we could see a
Speaker 3: bit more interest in smaller companies in the US or
Speaker 3: other sectors. As there seems to be this diversification of
Speaker 3: earnings and improved sentiment, we may see new players come
Speaker 3: in to the leading performers of the US market. If
Speaker 3: you look at some of the leading companies in the
Speaker 3: US so far, Nvidia and some other companies have been
Speaker 3: huge contributors. But there's also other companies that have done
Speaker 3: exceptionally well.
Speaker 1: Just tell us who they are outside the magnificence of
Speaker 1: and outside the tech titans.
Speaker 3: Yeah, so in VideA has been the biggest one. They
Speaker 3: are put about one hundred percent year to date. But
Speaker 3: then you've got other companies like energy companies. There's a
Speaker 3: Texas based company called Vista co Operation. They up over
Speaker 3: three hundred percent year to date. You've got other companies
Speaker 3: such as Texas specific Land corp as well. They also
Speaker 3: more involved in land and resource management. They up around
Speaker 3: two hundred percent for the year. So you are seeing
Speaker 3: this broadening and are.
Speaker 1: There what about the blue chips, the original Dow blue Chips.
Speaker 2: How have they come to the party yet?
Speaker 3: Yeah, I mean the Dow Jones is at what around
Speaker 3: about forty four thousand at the moment, forty five thousand
Speaker 3: at all time highs. So you're still seeing strong support
Speaker 3: for US equities. And that's why I think it's important
Speaker 3: to remain invested. You can be invested in the megacap
Speaker 3: tech names or the fang names, but having exposure to
Speaker 3: the blue chips, where it's your Dower Jones, looking at
Speaker 3: smaller cap names, looking a bit more of a broadening trade.
Speaker 3: It's important, particularly because Trump is very pro business, pro deregulation,
Speaker 3: reducing corporate taxes. We're in a disinflationary environment. He's also
Speaker 3: very supportive of energy companies as well. You know the
Speaker 3: Mantra Drill, Baby Drill.
Speaker 1: It's and I suppose Mark the rational part of this
Speaker 1: is you cut corporate taxes, you immediately lift corporate profits,
Speaker 1: You immusuitly lift earnings. Share prices should go up, so
Speaker 1: This is a real driver in the short term, but
Speaker 1: what about the longer term? Like any government that gets
Speaker 1: selected on promises and various policy changes, their honeymoon ends.
Speaker 2: We don't know how it lend, but it will end.
Speaker 1: And we have deeper concerns about tariffs with the US
Speaker 1: and how that would actually ultimately so everything YouTube in
Speaker 1: the US.
Speaker 3: Yeah, I think you're totally right, James, and tariffs in
Speaker 3: itself is in fact inflationary when you think about the
Speaker 3: impact of the underlying consumer, the underlying US companies, and
Speaker 3: even though what we're seeing, particularly within global markets is
Speaker 3: economies are flexing their geopolitical power, and the US has
Speaker 3: come out to say we want America for tariffs on everything.
Speaker 3: That in itself could create some pressures for some of
Speaker 3: the underlying companies given that their input costs may rise.
Speaker 3: So yes, you may see more development coming out of
Speaker 3: the US. But I think a lot of these measures
Speaker 3: which is the opposite of what we've been used to.
Speaker 2: It's all been about.
Speaker 3: Free trade agreements, globalization. Things are changing, but the US
Speaker 3: is definitely still keen to power on and if you
Speaker 3: look at some of the key appointments I was mentioning
Speaker 3: before that Trump is built out there, does seem this
Speaker 3: idea of maturity coming in. They've got Scott Bessant, who's
Speaker 3: the Treasury Secretary, and he's come in with this three
Speaker 3: three three policy. He wants three percent GDP growth, he
Speaker 3: wants to reduce the budget deficit by three percent, and
Speaker 3: he wants to increase the barrels of oil they're producing
Speaker 3: by three million barrels a day. So you are getting
Speaker 3: this element even though there's less globalization and tariffs. The
Speaker 3: whole idea of Trump two point zero when he gets
Speaker 3: inaugurated in January may create some uncertainty. These US companies
Speaker 3: strong franchises are going to continue to generate significant profits
Speaker 3: unless there is regulatory intervention trade wars. Will need to
Speaker 3: monitor those risks closely. It can be a challenge for
Speaker 3: growth if these tariffs materialize. But overall, we are seeing
Speaker 3: some of the greatest capitalist machines experiencing strong earnings growth
Speaker 3: in twenty twenty four, set to continue into twenty twenty five.
Speaker 1: Actually, one thing I wanted to choose this segment off
Speaker 1: on is the theory that as it trickers down through
Speaker 1: the US and the Magnificent seven already feeding as a
Speaker 1: contributor to the overall market returns. Excellent market retires are
Speaker 1: coming out of the US. Then there's the theory that
Speaker 1: the hardest part of the market will be small caps.
Speaker 1: What do you think of that US market small caps?
Speaker 3: The thing about these large tech companies, all these hyper
Speaker 3: scalers as they're known, they're expected to increase their capital
Speaker 3: expenditure into twenty twenty five to hundreds of billions of dollars.
Speaker 3: That significant spending will benefit a wide variety of sectors,
Speaker 3: whether you're looking at data centers, engineering and construction, nuclear,
Speaker 3: renewable power, gas power, electricity, there's so many different sectors
Speaker 3: that could benefit from it, which is why you're seeing
Speaker 3: a lot more interest in this broadening out of the trade.
Speaker 3: A lot of people are thinking, well, a lot of
Speaker 3: these tech companies that are reporting, not only James, do
Speaker 3: you need to beat Earning's expectations, but you almost need
Speaker 3: to beat the beat, if that makes sense. And that's
Speaker 3: why you'll see so much scrutiny on these big tech companies,
Speaker 3: which is why a lot of people are saying there
Speaker 3: has to be this broadening out of this trade, this
Speaker 3: reversion of small companies which is underperformed versus large cap companies,
Speaker 3: and we do see quite a bit of growth happening
Speaker 3: in some of these smaller companies relative to where they're
Speaker 3: trading at the moment, because if you look at where
Speaker 3: the S and P five hundred is trading at, it
Speaker 3: may look elevated, but as long as the earnings continue
Speaker 3: to support it, that will justify the valuations. There's been
Speaker 3: a bit of compression in the small companies area, so
Speaker 3: there could be a bit of a rotation, and we've
Speaker 3: started to see it more money flow into to smaller
Speaker 3: companies or broader sectors.
Speaker 1: That would be small company tfs, small capfs, Yeah, small
Speaker 1: companies ETFs.
Speaker 3: You've got different companies that are a bit more evenly
Speaker 3: distributed as well. But yeah, we have seen more flow
Speaker 3: into some of these smaller companies where it be both
Speaker 3: active or index based strategies. And I guess those a
Speaker 3: little bit different to your broad cap because you're not
Speaker 3: only holding the magnificent seven, but you're holding hundreds, if
Speaker 3: not thousands of companies that have different characteristics and exposures
Speaker 3: to the megacap companies. If you look at a small
Speaker 3: cap index, it's around about twenty percent financial, maybe fifteen
Speaker 3: percent industrial, whereas tech is only around about ten to
Speaker 3: fifteen percent. Very different to your megacap indices such as
Speaker 3: the S and P five hundred or the Nasdaq one hundred.
Speaker 1: Okay, now we'll take a short break and folks, people
Speaker 1: to be back and we will take a quick look
Speaker 1: at some other areas of the markets in twenty twenty five.
Speaker 1: Will take a look at the NASDAK, possibilities emerging mar
Speaker 1: and a quick glimpse at gold, which I would put
Speaker 1: in this very tradable area. Okay, back in a moment, Hello,
Speaker 1: welcome back to the Australian's Money Puzzle. James kirk Be
Speaker 1: talking to Mark Jogum of Global x ETPs. We're talking
Speaker 1: big picture here today, folks.
Speaker 2: We really are NASDAK.
Speaker 1: Then we would traditionally expect NASDAK to shoot out the
Speaker 1: lights that if that if the SMP was doing eight percent,
Speaker 1: we might think the nasak's got to do sixteen percent
Speaker 1: or something like that. What are they talking about on
Speaker 1: the Nasdaq, Mark.
Speaker 3: Yeah, we talked about the S and P five hundred
Speaker 3: being a key contributor, but the Nasdaq, which holds a
Speaker 3: lot of these megacap names that we were talking about before,
Speaker 3: they've done exceptionally well to pull the NASDAK to record
Speaker 3: high at about twenty one hundred points at the moment,
Speaker 3: where the price targets are looking closer to twenty three
Speaker 3: hundred leading into next year. So that to me is
Speaker 3: saying that there's still potential upside for the Nasdaq one
Speaker 3: hundred to do a lot of the heavy lifting. And
Speaker 3: that's because earning's growth. We talked about it before with
Speaker 3: the S and P five hundred to do low double digits.
Speaker 3: The Nasdaq is looking at doing closer to eighteen or
Speaker 3: nineteen percent next year from an earnings growth perspective. For
Speaker 3: a lot of investors who want exposure to US shares
Speaker 3: In particular, the Nasdaq has been this market dialing of
Speaker 3: being a great driver of share market return.
Speaker 1: So it did about thirty percent or sill, which is
Speaker 1: an amazing figure except that we've seen it so often.
Speaker 1: But it did thirty one percent or still in twenty
Speaker 1: twenty four. The NASTAK we've ignored the dividend ut here entirely.
Speaker 1: What are they saying as a forecast as a percentage
Speaker 1: growth for Nasdaq in twenty twenty five.
Speaker 2: So according to.
Speaker 3: The consensus you're looking at at a target of around
Speaker 3: nine to ten percent upside, which is a little bit
Speaker 3: more than the SMP five hundred, and.
Speaker 1: That's cool for a NASDAK listened to it.
Speaker 3: I mean, the Nasdaq tends to be a little bit
Speaker 3: more volatile than broad indices like the S and P
Speaker 3: five hundred, so you may experience perhaps wilder divergences like
Speaker 3: we saw in twenty twenty two where the Nasdaq fell
Speaker 3: a lot more than their S and P five hundred.
Speaker 3: But overall, I think because a lot of these companies
Speaker 3: continue to derive a lot of their revenue from technology
Speaker 3: and how much of these exposures are to NASDAK related indices,
Speaker 3: you could see these hyperscalers and these tech companies continue
Speaker 3: to do looking long term, despite concerns around the rich
Speaker 3: valuations and the Nasdaq or the broader US market trading
Speaker 3: at a pretty expensive premium, that doesn't necessarily mean a
Speaker 3: reason not to be invested, because, like we said, the
Speaker 3: business cycle is still an expansion. You've got a pretty
Speaker 3: healthy labor market and a lot of these Nasdaq returns
Speaker 3: have been driven from AI related activities and that can
Speaker 3: continue to drive We're seeing huge forecasts being expected for
Speaker 3: some of these AI related possibilities, and I think a
Speaker 3: lot of these companies are beginning to monetize a lot
Speaker 3: of their services. Looking at companies like open ai, who
Speaker 3: who use the technology of chat GPT. They expected to
Speaker 3: finish twenty twenty four with about five billion dollars in revenue,
Speaker 3: and that's expected to grow to ten billion dollars next year.
Speaker 3: With clear momentum and expanding use cases, AI is going
Speaker 3: to be a really compelling investment theme leading into twenty
Speaker 3: twenty five. That is very compelling for companies involved in
Speaker 3: those industries which tend to be on the Nasdaq overall.
Speaker 3: So yes, could be another good year for the Nasdaq overall.
Speaker 3: A lot of the growth is priced in because of
Speaker 3: the projected earnings growth that a lot of these companies
Speaker 3: are planning to do. It might just be more on
Speaker 3: the top line, more from a revenue perspective, whereas this
Speaker 3: year has been from an earnings perspective.
Speaker 2: Which is what the market really loves.
Speaker 1: All right, very interesting, So folks, I think the more
Speaker 1: risk in the market, the less useful the forecast. I
Speaker 1: would be considably more persuaded by a forecast for the
Speaker 1: AX whatever that might be because you're working off certain
Speaker 1: known gnomes, if you know what I mean, and the
Speaker 1: risk element is subdued because we have a lot of
Speaker 1: blue chips, police banks, supermarkets and minus where you could
Speaker 1: have a very good idea of their business. In the US,
Speaker 1: you have a whole elevated risk and risk taking which
Speaker 1: gives wonderful results, but also means someone talking about nurse
Speaker 1: actor in ten percent next year is kind of like
Speaker 1: in a way.
Speaker 2: It's supposed extreme, utterly useless.
Speaker 1: I don't mean to I'm sure you actually agree with me,
Speaker 1: even though I don't know if you agree with me,
Speaker 1: do you?
Speaker 2: I totally agree with you.
Speaker 3: If you look at the average forecast for the S
Speaker 3: and P five hundred in twenty twenty four, James, so
Speaker 3: we're recording this at the end of twenty twenty four,
Speaker 3: the average forecast was forty six hundred, and the upper
Speaker 3: range of that limit in terms of who was the
Speaker 3: most bullish was fifty four hundred, and we've blown through
Speaker 3: six thousand points. So there was one research company in
Speaker 3: those forecasts that had an era of around seventy seven
Speaker 3: percent because they were too bearish. That shows there is
Speaker 3: an issue. While the price factor was wrong, the earnings,
Speaker 3: funnily enough, was right. So a lot of these people
Speaker 3: who were who were forecasting their earnings growth were very accurate.
Speaker 3: But the reason it's so hard to predict is you
Speaker 3: don't know what investors are willing to pay for those earnings.
Speaker 3: And in twenty twenty four, the answer was they are
Speaker 3: willing to pay for a lot for some of these
Speaker 3: earnings growth. So yes, with a word of caution, take
Speaker 3: anything that I say or what the market consensus is
Speaker 3: saying with a grain of salt, because there's a lot
Speaker 3: of perils in forecasting.
Speaker 1: Absolutely, as you say, people who were seventy percent of
Speaker 1: oubts just pretty bad.
Speaker 2: If we can't quickly two areas.
Speaker 1: That people who had ETFs and they were looking or
Speaker 1: people who were trying to diversify their portfolio. Our listeners
Speaker 1: on chair markets who were using funds with ETFs to
Speaker 1: do so, would be looking to complete the picture. They
Speaker 1: might look at emerging markets who they might look at
Speaker 1: gold are the emerging markets?
Speaker 2: It would seem the election.
Speaker 1: Of Trump and he's talk about tariffs, a strengthening US
Speaker 1: donor could possibly be good for emerging markets.
Speaker 2: Perhaps I'm wrong.
Speaker 1: What's the story on that side of things.
Speaker 3: No, James, your sentiment is correct in terms of a
Speaker 3: lot of people thinking that the Trump trade is going
Speaker 3: to be quite bearish for some emerging markets, given a
Speaker 3: lot of the issues around tariffs, higher for longer interest rates,
Speaker 3: a strong US dollar because a lot of emerging market
Speaker 3: debt is denominated in US dollars, so a rising US
Speaker 3: dollar is generally bad for them, tightening financial conditions. You're
Speaker 3: not seeing too much out of China, and I think
Speaker 3: on China it is a pivotal player in the emerging
Speaker 3: market story. It's grappling with modest stimulus efforts that seem
Speaker 3: relatively insufficient to spur a bit of a meaningful recovery.
Speaker 3: And considering we've seen this like we saw during twenty
Speaker 3: eighteen and twenty nineteen, China still is a very big
Speaker 3: global manufacturing powerhouse. It dominates that sective estimate around thirty
Speaker 3: five to forty percent, so it is quite crucial from
Speaker 3: a global supply chain. So for investors, China is a
Speaker 3: bit of a mixed picture. The outlook remains challenging. Corporate
Speaker 3: earnings might be weaker and predictable. Elsewhere in emerging markets,
Speaker 3: there might be some bright spots. We've seen the likes
Speaker 3: of Taiwanese companies like taiwan Semon Conductors key play in
Speaker 3: the technological revolution, but we've found that India has been
Speaker 3: a standout performer and one of the fastest growing economies
Speaker 3: as well, bolted by strong balance sheets, fiscal maturity, and
Speaker 3: unlike China, India is driven from domestic revenue. You might
Speaker 3: be able to insulate some of that risk associated with
Speaker 3: global trade tensions, even though India is becoming a part
Speaker 3: of the global environment. It's a very compelling growth story,
Speaker 3: powered from elevated profit margins, strong earnings expectations. As a
Speaker 3: big demographical shift as well, India has become the world's
Speaker 3: largest population, overtaking China. In terms of the Emerging Markets Index,
Speaker 3: India is likely to be a bigger player. I still
Speaker 3: see some opportunities emerging within emerging markets.
Speaker 1: They're up with the country based other than the category.
Speaker 3: Yeah, there might be a bit of country divergence. Overall,
Speaker 3: A lot of the forecasts are expecting even though they
Speaker 3: might be stronger earnings growth with some of these companies,
Speaker 3: and because they're trading at such heavy discounts relative to
Speaker 3: where they valued, you might not see as much upward
Speaker 3: growth in terms of the price predictions as the US market.
Speaker 3: So we're also talking about single digits here. But from
Speaker 3: a country perspective, yes, it could be that there might
Speaker 3: be a divergence that a lot more people are interested
Speaker 3: in emerging markets like India. If you look at what's
Speaker 3: happening with this AI strategic revolution and some of the
Speaker 3: associated themes semi conductors or the companies that are making
Speaker 3: some of these chips, it's still going to be a
Speaker 3: key component within next year's earnings for people who are
Speaker 3: looking for these types of companies. Doesn't mean that you
Speaker 3: shouldn't look within emerging markets. It just might mean people
Speaker 3: might be a little more tactical with how they allocate
Speaker 3: towards emerging markets.
Speaker 1: Okay, people just saying I won't push any harder because
Speaker 1: I don't think anyone could possible to give an answer
Speaker 1: With India, you know it's going to finally come through
Speaker 1: in the way that many people have thought it could
Speaker 1: and would that for every individualistic to make their own better.
Speaker 2: Okay, before you go, one last thing. Gold.
Speaker 1: Now, gold has been good and has been good for
Speaker 1: quite some time, and you find that even the bullers
Speaker 1: and bears like gold. In this environment, gold investors will
Speaker 1: always find competing reasons to buy gold under any conditions
Speaker 1: to today's conditions. I dealt there's a consensus as to
Speaker 1: what gold will do in a year.
Speaker 2: Is there?
Speaker 3: I mean a lot of people are in the business
Speaker 3: of making predictions of what the gold price is going
Speaker 3: to do, and at the moment, James, the goal price
Speaker 3: is hovering around about twenty six twenty seven hundred dollars
Speaker 3: an ounce. I've seen some forecasts from some leading banks
Speaker 3: who have very smart analysts, way smarter than me looking
Speaker 3: at and they've got models of how they have their
Speaker 3: price forecast looking as high as close to three thousand
Speaker 3: dollars in terms of proyouns on a US dollar basis.
Speaker 3: I think because of the there's a lot of tailwinds
Speaker 3: within the demand for the precious yellow metal. If you
Speaker 3: are worried about raising geopolitical tension, gold is naturally that
Speaker 3: safe haven. When Trump did initially come into power, we
Speaker 3: did see a little bit of a selloff in gold.
Speaker 3: It was a rising US dollar. People were a little
Speaker 3: bit more confident, but there could be still some ongoing
Speaker 3: geopolitical tensions. I know there's been a bit of a
Speaker 3: ceasefire at least a promise within the Middle East, but
Speaker 3: who knows around ongoing tensions that's going to happen, and
Speaker 3: that boats quite well with the gold price. In terms
Speaker 3: of inflation being put back in the genie bottle. Who
Speaker 3: knows whether we may get a reflationary trade. Everyone is
Speaker 3: talking about disinflation and we're getting close to that target
Speaker 3: band where most economies want inflation to be. But if
Speaker 3: there is a bit of inflationary surprise to the upside,
Speaker 3: gold is a proven commodity to provide that hedge against inflation.
Speaker 3: And Trump's policies may be inflationary, there could be more
Speaker 3: from a fiscal deficit perspective, people wantrorried about how much
Speaker 3: debt is involved in the global economy. There still could
Speaker 3: be a lot of tailwinds for gold. And if rates
Speaker 3: do continue to fall and real yields continue to fall,
Speaker 3: that also bodes well for the gold price. So overall,
Speaker 3: plenty of tailwinds for the precious yellow metal. Very important
Speaker 3: part of clients investment portfolios, particularly as a defensive hedge,
Speaker 3: because I always say that if gold is the worst
Speaker 3: performing acid in your portfolio, it means the rest is doing.
Speaker 1: It was a good year assuming you have a diversi
Speaker 1: folked portfolio.
Speaker 2: Exactly.
Speaker 3: This year has been different where gold has performed exceptionally
Speaker 3: well in terms of relative returns to the broader market.
Speaker 1: The point you're making is its performed very well. I
Speaker 1: still did everything else.
Speaker 3: It was coordinators, which exactly or are you Sometimes normally
Speaker 3: you have different correlations within gold and other asset classes
Speaker 3: over the long term, but this year there's been different drivers.
Speaker 3: You've seen major demand from central banks. You've seen flows
Speaker 3: coming back into ets for gold. People are wanting that
Speaker 3: as a safe haven. You're seeing strong and from emerging
Speaker 3: economies because gold also has that industrial application, It's got
Speaker 3: the jewelry application as well. We've seen India stockpile leading
Speaker 3: into the celebratory season as well. But overall, great diverse
Speaker 3: fire to having your portfolio. Yes, it has performed quite well,
Speaker 3: but it's not meant to be the return driver. It's
Speaker 3: meant to be the defensive cushion you have in your
Speaker 3: portfolio when everything else doesn't perform well.
Speaker 1: Well, that was a terrific round the world with Marked
Speaker 1: Your come in forty four minutes, as it turned out,
Speaker 1: terrific Marked Global gctf's investment stressages. Thanks very much for
Speaker 1: coming on the show.
Speaker 3: Thanks for having me James, Well, look.
Speaker 1: Forward to having you again on the show Cross Finally Fire.
Speaker 1: Well we will return to see how some of these
Speaker 1: consensus predictions turned out over the year. Thanks very much
Speaker 1: everybody for listening. Keep those emails rolling. Love to have
Speaker 1: some correspondence from you the Money Puzzle at the Australia
Speaker 1: dot Com Dot You. Today's show was produced by Leah
Speaker 1: Samuel glup Toku Soon the Wood
Speaker 3: Cho