1 00:00:05,840 --> 00:00:08,039 Speaker 1: Welcome to Fearing Greed Q and A, where we ask 2 00:00:08,080 --> 00:00:11,760 Speaker 1: and answer questions about business, investing, economics, politics and more. 3 00:00:11,840 --> 00:00:15,000 Speaker 1: I'm Sean Aylmer. Equities are on a tear. The local 4 00:00:15,040 --> 00:00:18,080 Speaker 1: market is trading near record highs, so to Wall Street. 5 00:00:18,480 --> 00:00:20,680 Speaker 1: But is there too much froth in the market? Will 6 00:00:20,720 --> 00:00:23,439 Speaker 1: the market take a breather sometime this year? What sectors 7 00:00:23,480 --> 00:00:26,840 Speaker 1: will outperform and underperform? To answer some of those questions, 8 00:00:26,840 --> 00:00:31,040 Speaker 1: I welcome back Lachlan Halloway, equity market strategists at Morning Star. 9 00:00:31,120 --> 00:00:33,600 Speaker 1: Of course, the information in this episode is general in nature, 10 00:00:33,840 --> 00:00:36,800 Speaker 1: doesn't take into account your own circumstances. You should always 11 00:00:36,800 --> 00:00:39,280 Speaker 1: do your own research and seek professional advice before making 12 00:00:39,320 --> 00:00:41,520 Speaker 1: investment decisions. Lachlan, welcome back to Fearing Greed. 13 00:00:41,760 --> 00:00:42,519 Speaker 2: Thanks for having me. 14 00:00:42,800 --> 00:00:46,440 Speaker 1: How far can the market run? That's a pretty upfront question. 15 00:00:46,720 --> 00:00:50,280 Speaker 3: It is, and I'll get the crystal ball out exactly. 16 00:00:50,400 --> 00:00:55,560 Speaker 3: In the near term, it's anybody's guests, you know, Valuations, 17 00:00:55,760 --> 00:00:58,720 Speaker 3: while they're what we look at most close to the fundamentals, 18 00:00:58,760 --> 00:01:00,400 Speaker 3: you know, in the very short term, we don't have 19 00:01:01,080 --> 00:01:02,920 Speaker 3: a hell of a lot of preptive power. I mean 20 00:01:03,040 --> 00:01:05,080 Speaker 3: we're talking about sort of short term one year returns. 21 00:01:05,200 --> 00:01:08,720 Speaker 3: So to answer your question, we don't really know in 22 00:01:08,720 --> 00:01:10,600 Speaker 3: the very near term. What we can say is that 23 00:01:10,720 --> 00:01:14,440 Speaker 3: over the long run, prices valuation levels are a reasonable 24 00:01:14,520 --> 00:01:18,800 Speaker 3: predictor of returns, and we would say that Australian equities 25 00:01:19,319 --> 00:01:22,240 Speaker 3: in particular are looking extended now and that might mean 26 00:01:22,240 --> 00:01:24,399 Speaker 3: that the strong returns of the last few years are unlikely 27 00:01:24,440 --> 00:01:25,560 Speaker 3: to be repeated. 28 00:01:27,040 --> 00:01:29,759 Speaker 1: Okay, you can we talk about concentration in the market 29 00:01:29,800 --> 00:01:33,759 Speaker 1: because we have had these incredible returns, but the market's 30 00:01:33,760 --> 00:01:37,160 Speaker 1: getting pretty concentrated thanks to the big banks and West Farmers. 31 00:01:37,600 --> 00:01:39,560 Speaker 1: Just take us through that and what that means for 32 00:01:39,600 --> 00:01:40,080 Speaker 1: the future. 33 00:01:40,920 --> 00:01:45,319 Speaker 3: Yeah, So over the last two years, Ossie equities have 34 00:01:45,400 --> 00:01:48,120 Speaker 3: had a good run. They're up about thirty two percent 35 00:01:48,480 --> 00:01:50,200 Speaker 3: in terms of total returns, which is very strong from 36 00:01:50,200 --> 00:01:52,400 Speaker 3: asset class that you know typically arises about nine percent 37 00:01:52,480 --> 00:01:54,640 Speaker 3: or so a year. But if we drill down into 38 00:01:54,640 --> 00:01:58,560 Speaker 3: what underpinned a lot of that performance, five stocks the 39 00:01:58,600 --> 00:02:01,640 Speaker 3: big four banks plus West farm has accounted for about 40 00:02:01,680 --> 00:02:04,840 Speaker 3: half of that thirty percent rise, the other one hundred 41 00:02:04,840 --> 00:02:07,880 Speaker 3: and ninety five stocks in the benchmark index to the 42 00:02:07,920 --> 00:02:12,040 Speaker 3: other half. So it's heavily skewed towards a small handful 43 00:02:12,480 --> 00:02:16,560 Speaker 3: of stocks, and even more so to a small sector 44 00:02:16,880 --> 00:02:18,919 Speaker 3: of air Sex. Not a small sector, but I should 45 00:02:18,960 --> 00:02:21,919 Speaker 3: say a sector of the air Sex in the banks. Now, 46 00:02:22,560 --> 00:02:26,520 Speaker 3: you know, when we think about concentration risk, I would 47 00:02:26,560 --> 00:02:30,200 Speaker 3: say that we've got questions abroad about AI, you know, 48 00:02:30,240 --> 00:02:33,240 Speaker 3: whether it's a bubble, whether the mag seven are a 49 00:02:33,520 --> 00:02:36,760 Speaker 3: price too richly. But I think you could argue there 50 00:02:36,840 --> 00:02:39,400 Speaker 3: is a pretty clear catalyst there for that strong one up. 51 00:02:39,400 --> 00:02:41,320 Speaker 3: And Okay, there's the bears and there's the bulls, but 52 00:02:41,320 --> 00:02:45,959 Speaker 3: there clearly is a fundamental driver of this boom here 53 00:02:46,320 --> 00:02:48,720 Speaker 3: for the banks, having seen an absolute surge in their 54 00:02:48,760 --> 00:02:52,880 Speaker 3: share prices, we find it hard to identify a catalyst 55 00:02:52,880 --> 00:02:55,280 Speaker 3: that will justify that. That means our market's becoming more 56 00:02:55,280 --> 00:02:57,680 Speaker 3: aligant on the banks than our mako about a quarter 57 00:02:57,720 --> 00:03:00,600 Speaker 3: of the ASEX two hundred. And it also means that 58 00:03:00,639 --> 00:03:04,480 Speaker 3: investors in AlSi shares are more heavily geared towards Australian 59 00:03:04,480 --> 00:03:06,600 Speaker 3: property underlying acid for the banks, which is which is 60 00:03:06,600 --> 00:03:09,920 Speaker 3: a risk they probably already carry elsewhere in their in 61 00:03:09,960 --> 00:03:12,240 Speaker 3: their net worth. So I raised in a bit of 62 00:03:12,240 --> 00:03:15,560 Speaker 3: a puzzle in terms of diversification or concentration for Ozzy investors. 63 00:03:15,919 --> 00:03:19,040 Speaker 1: Okay, Lachlan, that that's sort of the banks and the concentration. 64 00:03:19,240 --> 00:03:21,000 Speaker 1: What about kind of the flip side of that is 65 00:03:21,040 --> 00:03:23,560 Speaker 1: a small caps which had underperformed for a long time, 66 00:03:23,600 --> 00:03:26,240 Speaker 1: that they have done a bit better more recently, they have. 67 00:03:26,919 --> 00:03:28,480 Speaker 3: They've you know, they've caught up a lot of the 68 00:03:28,880 --> 00:03:31,120 Speaker 3: lagging performance they've seen over the last few years. You know, 69 00:03:31,120 --> 00:03:33,680 Speaker 3: if we think back the last couple of years, small 70 00:03:33,680 --> 00:03:37,000 Speaker 3: caps are generally unperformed. Obviously has been you know, economic weakness, 71 00:03:37,000 --> 00:03:38,960 Speaker 3: which probably hurts them in particular because most of them 72 00:03:38,960 --> 00:03:42,480 Speaker 3: autmestically focused, and the large caps more recently, as the 73 00:03:42,480 --> 00:03:45,520 Speaker 3: sort of economy has started to turn up, they've they've 74 00:03:45,560 --> 00:03:47,760 Speaker 3: made up a lot of ground. And on top of that, 75 00:03:47,800 --> 00:03:50,680 Speaker 3: we've seen a few large caps start to pull back 76 00:03:50,720 --> 00:03:53,400 Speaker 3: a little bit too. The minus an extent that the 77 00:03:53,400 --> 00:03:55,080 Speaker 3: bank's a little bit more recently as well, and a 78 00:03:55,120 --> 00:03:58,000 Speaker 3: few other large cap names were worth cso for example. 79 00:03:58,000 --> 00:04:00,240 Speaker 3: So the small caps have have done quite well well, 80 00:04:01,120 --> 00:04:03,880 Speaker 3: and even with that strong surge in the last couple 81 00:04:03,920 --> 00:04:06,720 Speaker 3: of quarters, we still think they're more reasonably priced than 82 00:04:06,880 --> 00:04:10,280 Speaker 3: the large end of the market. So generally speaking, you know, 83 00:04:10,360 --> 00:04:12,920 Speaker 3: we're more optimistic on valuations at the smaller end in 84 00:04:13,000 --> 00:04:13,560 Speaker 3: the large end. 85 00:04:13,840 --> 00:04:15,920 Speaker 1: Okay, so smaller end rather than the large end. What 86 00:04:15,960 --> 00:04:20,200 Speaker 1: about sectors there are I know that. I mean in 87 00:04:20,200 --> 00:04:23,359 Speaker 1: a note you've put out the three attractively priced sectors 88 00:04:23,360 --> 00:04:26,599 Speaker 1: on the aa SEX the first one Energy. What do 89 00:04:26,640 --> 00:04:28,640 Speaker 1: you like an energy and why we're. 90 00:04:28,560 --> 00:04:30,400 Speaker 3: The two big players there would side in Santos. You 91 00:04:30,440 --> 00:04:32,840 Speaker 3: like them both from a valuations perspective, I mean talking 92 00:04:32,880 --> 00:04:34,880 Speaker 3: about Santos. Obviously, the big news in the last month 93 00:04:34,960 --> 00:04:38,039 Speaker 3: or so it has been the unwinding the failure of 94 00:04:38,080 --> 00:04:42,720 Speaker 3: that takeover offer from Aberdabi led XIG consortium. You know, 95 00:04:42,760 --> 00:04:48,200 Speaker 3: shares tumbled after that announcement came through and the takeover premium. 96 00:04:47,720 --> 00:04:49,120 Speaker 2: That was baked in the shares unwound. 97 00:04:49,279 --> 00:04:51,680 Speaker 3: You know, we don't see this as necessarily a bad 98 00:04:51,720 --> 00:04:54,400 Speaker 3: thing for long term shareholders. Obviously the share price four 99 00:04:54,480 --> 00:04:57,160 Speaker 3: hurts in the short term, but you know, longer run. 100 00:04:57,440 --> 00:05:00,840 Speaker 3: It's now back to business for Santos. Ane products. They have, 101 00:05:00,880 --> 00:05:03,000 Speaker 3: you know, Barossa, which is coming on line now, the 102 00:05:03,040 --> 00:05:05,560 Speaker 3: Picker oil project for next year. You know, a lot 103 00:05:05,560 --> 00:05:07,840 Speaker 3: of the investment has now been done by Santos and 104 00:05:07,839 --> 00:05:10,960 Speaker 3: now it's about you know, earning a return on that capital, 105 00:05:11,120 --> 00:05:13,040 Speaker 3: showing that there still is growth in this business. And 106 00:05:13,480 --> 00:05:16,200 Speaker 3: as those projects come online and assuming you know, costs 107 00:05:16,279 --> 00:05:19,480 Speaker 3: and costs are contained and it ramped up on schedule, 108 00:05:19,720 --> 00:05:21,279 Speaker 3: we think there is still a growth outlook here and 109 00:05:21,360 --> 00:05:23,960 Speaker 3: uplishing production. And as the markets asked to see that, 110 00:05:24,000 --> 00:05:26,560 Speaker 3: we think that could bode are rerating to more appropriate 111 00:05:26,640 --> 00:05:29,440 Speaker 3: multiples for that business in healthcare. 112 00:05:29,680 --> 00:05:32,280 Speaker 1: You don't mind CSL. Now you don't have a huge 113 00:05:32,279 --> 00:05:34,280 Speaker 1: amount of friends Lacklan when it comes to CSL at 114 00:05:34,279 --> 00:05:37,200 Speaker 1: the moment, like it really has. It was re rated 115 00:05:37,440 --> 00:05:39,600 Speaker 1: and since then it sort of just seems to have 116 00:05:40,040 --> 00:05:43,320 Speaker 1: continued to fall. Why do you think CSL is still 117 00:05:43,400 --> 00:05:44,240 Speaker 1: value in cs cell? 118 00:05:45,080 --> 00:05:47,080 Speaker 2: Yeah, Look, I think there are a number of things 119 00:05:47,120 --> 00:05:47,520 Speaker 2: going on. 120 00:05:48,040 --> 00:05:49,200 Speaker 3: So I think we all know when most of the 121 00:05:49,200 --> 00:05:51,200 Speaker 3: market knows in terms of what's put pressure on CSL's 122 00:05:51,200 --> 00:05:53,800 Speaker 3: share price. You know, the surprise slowed down to their 123 00:05:53,800 --> 00:05:56,160 Speaker 3: full year and their core plasma division, which is really 124 00:05:56,320 --> 00:05:56,760 Speaker 3: what matters. 125 00:05:56,800 --> 00:05:58,599 Speaker 2: I think caught a lot of people off guard, you know, 126 00:05:58,640 --> 00:06:00,479 Speaker 2: including us as well. 127 00:06:00,520 --> 00:06:03,160 Speaker 3: They've also got you know, the big R and D 128 00:06:04,120 --> 00:06:06,880 Speaker 3: head count cut, you know, and they've got the spin 129 00:06:06,920 --> 00:06:09,839 Speaker 3: off as well of scars of the vaccine division. So 130 00:06:09,920 --> 00:06:11,479 Speaker 3: I think this as were just too much was thrown 131 00:06:11,480 --> 00:06:13,280 Speaker 3: at them too quickly, and I think a lot of 132 00:06:13,279 --> 00:06:16,400 Speaker 3: them just threw their hands up. There are short term 133 00:06:16,720 --> 00:06:19,560 Speaker 3: challenges that the business has to overcome here, those ones 134 00:06:19,560 --> 00:06:22,320 Speaker 3: I just mentioned, but you know, we care mostly about 135 00:06:22,320 --> 00:06:24,880 Speaker 3: the long term and we still think that the picture 136 00:06:25,960 --> 00:06:30,120 Speaker 3: is solid there, you know, plasma or it's indigold and therapies. 137 00:06:30,200 --> 00:06:33,640 Speaker 2: For CSL, I think there are long structural. 138 00:06:33,080 --> 00:06:37,120 Speaker 3: Demand tail winds there arising dignosis rates an aging population, 139 00:06:37,200 --> 00:06:39,600 Speaker 3: for example. In terms of the costs which the other 140 00:06:39,680 --> 00:06:43,640 Speaker 3: overhang plasma collection costs, we see improvements there. You know, 141 00:06:43,680 --> 00:06:47,680 Speaker 3: their new Riaka plasma collector system is improving efficiency, lowering costs. 142 00:06:47,720 --> 00:06:51,280 Speaker 3: That should support gross margins for the core CSL bearing 143 00:06:51,279 --> 00:06:54,640 Speaker 3: plaza business and in turn, as we move past this 144 00:06:54,760 --> 00:06:58,000 Speaker 3: short term hiccup, unlock the value to the market of 145 00:06:58,080 --> 00:07:00,479 Speaker 3: that business. So it's trading in five such ritary at 146 00:07:00,520 --> 00:07:02,880 Speaker 3: the moment and as one of the most attractive healthcare 147 00:07:02,880 --> 00:07:04,040 Speaker 3: stocks we see in the ASEX. 148 00:07:04,800 --> 00:07:07,000 Speaker 1: So moving to consumer defensive, is it sort of the 149 00:07:07,040 --> 00:07:11,840 Speaker 1: same argument for woolies. You've you're contrariant Lachland almost with 150 00:07:11,960 --> 00:07:14,560 Speaker 1: CSL Woolies, and I'd almost throw Santos in that one 151 00:07:14,600 --> 00:07:14,960 Speaker 1: as well. 152 00:07:15,040 --> 00:07:16,560 Speaker 3: Yeah, I think so as it turns out, there three 153 00:07:16,640 --> 00:07:18,840 Speaker 3: picks to happen to have something in common. You know, 154 00:07:18,880 --> 00:07:21,560 Speaker 3: we talk about James Hardy next, but I think you 155 00:07:21,600 --> 00:07:25,640 Speaker 3: know with with with Woolies, it's somewhat similar. Again, it's 156 00:07:25,680 --> 00:07:27,760 Speaker 3: this sort of short term thing the market's focusing on. 157 00:07:27,800 --> 00:07:30,280 Speaker 3: I mean, there's no denying that they're underperforming, you know, 158 00:07:30,320 --> 00:07:33,120 Speaker 3: their art rival and Coals at the moment. You know, 159 00:07:33,120 --> 00:07:37,560 Speaker 3: they've had disruptions with their distribution centers, and there's there's 160 00:07:37,600 --> 00:07:39,600 Speaker 3: other sort of you know, the simulating chair, and perhaps 161 00:07:39,640 --> 00:07:41,120 Speaker 3: it's been a bit of a bit of the brand 162 00:07:41,160 --> 00:07:44,680 Speaker 3: has been tarnished. But these two businesses cosmowarths have a 163 00:07:44,840 --> 00:07:48,160 Speaker 3: very very very long history of competing closely with each other, 164 00:07:48,480 --> 00:07:51,440 Speaker 3: you know, ones the leader in the laggard, you know, 165 00:07:51,480 --> 00:07:54,600 Speaker 3: and that and that role changes over time. At the moment, 166 00:07:54,680 --> 00:07:56,920 Speaker 3: Woolies is the laggard. But they do have a much 167 00:07:57,040 --> 00:08:00,880 Speaker 3: higher sales base, which means structurally higher margins scale advantage 168 00:08:00,920 --> 00:08:03,320 Speaker 3: in other terms, so they do have the capacity to 169 00:08:03,360 --> 00:08:06,920 Speaker 3: cut prices to reinvest, so to speak, back into lower prices, 170 00:08:06,960 --> 00:08:09,120 Speaker 3: to win back the trust to customers and start to 171 00:08:09,240 --> 00:08:11,520 Speaker 3: rest some of that share back from Coals. And if 172 00:08:11,560 --> 00:08:14,120 Speaker 3: you believe that they can do that, like we do, 173 00:08:14,680 --> 00:08:18,080 Speaker 3: then the valuation right now for all worse looks much 174 00:08:18,200 --> 00:08:21,560 Speaker 3: more appealing than Coals, and sentiment changes quickly. 175 00:08:21,600 --> 00:08:22,120 Speaker 2: It was will worse. 176 00:08:22,160 --> 00:08:23,760 Speaker 3: It was a market going a few years ago, and 177 00:08:24,240 --> 00:08:25,160 Speaker 3: that may change again. 178 00:08:26,080 --> 00:08:28,240 Speaker 1: Okay, before I let you go, what about a small 179 00:08:28,320 --> 00:08:30,240 Speaker 1: cap off the top of your head, Is there a 180 00:08:30,240 --> 00:08:32,240 Speaker 1: small cap that you like, because the once we've been 181 00:08:32,240 --> 00:08:35,840 Speaker 1: mentioning are obviously large caps. What about on the other side. 182 00:08:35,960 --> 00:08:38,280 Speaker 3: Yeah, I'm a little one that we've called out. It's 183 00:08:38,360 --> 00:08:41,560 Speaker 3: technom we was talking about recently. I think it was siteminder. 184 00:08:42,200 --> 00:08:44,880 Speaker 3: You know, that's still a name that we do like 185 00:08:45,000 --> 00:08:48,920 Speaker 3: in smaller cap space, small tech company that does bookings 186 00:08:48,920 --> 00:08:52,040 Speaker 3: and billing software for small medium hoteliers. It's one of 187 00:08:52,080 --> 00:08:56,800 Speaker 3: those software businesses that we think has a highly winnable market. 188 00:08:57,280 --> 00:08:59,400 Speaker 3: You know, there's a lot of in house booking management 189 00:08:59,400 --> 00:09:01,120 Speaker 3: at the moment, and we think that that market is 190 00:09:01,200 --> 00:09:02,880 Speaker 3: right for the taking for site minders. They've got a 191 00:09:02,880 --> 00:09:05,000 Speaker 3: big addressle market there in the early stage of that 192 00:09:05,000 --> 00:09:07,320 Speaker 3: growth journey. But as they win that market, like we 193 00:09:07,360 --> 00:09:09,920 Speaker 3: think they should, you know, we think that that job 194 00:09:10,000 --> 00:09:12,680 Speaker 3: that should result in a substantiary rating for the shares. 195 00:09:12,760 --> 00:09:14,720 Speaker 2: So that's a small cap name we like in the 196 00:09:14,720 --> 00:09:15,160 Speaker 2: text space. 197 00:09:15,559 --> 00:09:17,200 Speaker 1: Lachlan, thank you for talking to Fear and Greed. 198 00:09:17,400 --> 00:09:18,120 Speaker 2: Thanks for having me. 199 00:09:18,440 --> 00:09:21,600 Speaker 1: It was the morning start Equity market strategist Lachland Halloway. 200 00:09:21,840 --> 00:09:24,120 Speaker 1: This is the Fearing Greed Q and A. Remember this 201 00:09:24,200 --> 00:09:26,480 Speaker 1: is general information only and you should always see professional 202 00:09:26,480 --> 00:09:29,920 Speaker 1: advice before making investment decisions. Join us every morning for 203 00:09:30,000 --> 00:09:32,640 Speaker 1: the full episode of Fear and Greed. I'm sure all 204 00:09:33,240 --> 00:09:34,959 Speaker 1: enjoy your day.