1 00:00:05,720 --> 00:00:07,920 Speaker 1: Welcome to the Fear and Greed Business Interview. I'm sure 2 00:00:07,920 --> 00:00:10,600 Speaker 1: in Alma last week the ASX two hundred and several 3 00:00:10,640 --> 00:00:13,680 Speaker 1: new records, fueled by the US FED, cutting interest rates, 4 00:00:13,920 --> 00:00:16,840 Speaker 1: stronger iron ore prices, and some solid labor force figures. 5 00:00:17,000 --> 00:00:19,599 Speaker 1: It raises plenty of questions for investors, including what to 6 00:00:19,600 --> 00:00:21,800 Speaker 1: do about the banks which just seemed to keep on 7 00:00:22,000 --> 00:00:24,480 Speaker 1: keeping on, and the resources giants which have really been 8 00:00:24,520 --> 00:00:26,560 Speaker 1: a handbreak for much of the year. I wanted to 9 00:00:26,600 --> 00:00:28,400 Speaker 1: take a broader look at the market and some of 10 00:00:28,440 --> 00:00:30,920 Speaker 1: these issues for investors. Of course, the information in this 11 00:00:30,960 --> 00:00:34,680 Speaker 1: episode is general in nature. It doesn't take into account 12 00:00:34,720 --> 00:00:38,280 Speaker 1: anyone's personal circumstances. You should always do your own research 13 00:00:38,440 --> 00:00:41,960 Speaker 1: and seek professional advice before making investment decisions. Lachlan Halloway 14 00:00:42,080 --> 00:00:45,000 Speaker 1: is the equity market strategist at morning Star. Lachland, welcome 15 00:00:45,000 --> 00:00:45,680 Speaker 1: to Fear and Greed. 16 00:00:45,880 --> 00:00:47,440 Speaker 2: Thanks having me Lock. 17 00:00:47,600 --> 00:00:50,080 Speaker 1: What do you say about the banks? They just keep 18 00:00:50,159 --> 00:00:53,760 Speaker 1: on going? I noticed an Z on Friday hit another 19 00:00:54,080 --> 00:00:56,600 Speaker 1: multi multi year high and nabbed at seventeen year high. 20 00:00:56,600 --> 00:00:59,720 Speaker 1: As Colmwelth Bank's been hitting a record. Can you keep 21 00:00:59,760 --> 00:01:00,880 Speaker 1: in in them? 22 00:01:01,040 --> 00:01:02,840 Speaker 2: Well, yeah, it's kind of a million dollar question at 23 00:01:02,840 --> 00:01:05,960 Speaker 2: the moment, and certainly a big puzzle for market commentators 24 00:01:05,959 --> 00:01:10,119 Speaker 2: and analysts. What keeps pushing them up? On our assessment 25 00:01:10,720 --> 00:01:14,920 Speaker 2: of their intrinsic value. They look expensive, said that now 26 00:01:14,959 --> 00:01:18,960 Speaker 2: for quite some time, but they continue to press higher. 27 00:01:19,160 --> 00:01:22,240 Speaker 2: CBA is the outlier. I think on our coverage list 28 00:01:22,480 --> 00:01:25,280 Speaker 2: of the major banks, only A and Z looks close 29 00:01:25,319 --> 00:01:27,759 Speaker 2: to fair value. How you invest them now? I think 30 00:01:27,800 --> 00:01:30,360 Speaker 2: it's probably hard to find a lot of value those 31 00:01:30,480 --> 00:01:34,240 Speaker 2: in those four majors. Some of the regionals we see 32 00:01:34,480 --> 00:01:37,520 Speaker 2: as trading at a discount, so their their fair value, 33 00:01:37,520 --> 00:01:39,640 Speaker 2: but they're not really what you probably expect as part 34 00:01:39,680 --> 00:01:44,000 Speaker 2: of a core holding. So it makes things challenging. Absolutely, 35 00:01:44,200 --> 00:01:46,600 Speaker 2: But that's that's sort of the nature of the thing. 36 00:01:46,600 --> 00:01:48,880 Speaker 2: I mean, what drives market's near term is sort of 37 00:01:48,880 --> 00:01:52,680 Speaker 2: anyone's guess, But longer term, we think valuations do matter, 38 00:01:52,840 --> 00:01:55,360 Speaker 2: and it's a weighing machine and not a voting machine 39 00:01:55,360 --> 00:01:57,520 Speaker 2: in the long run, I think to borrow to borrow 40 00:01:57,560 --> 00:01:58,000 Speaker 2: that phrase. 41 00:01:58,600 --> 00:02:02,320 Speaker 1: Okay, tech company is obviously much bigger question mark on 42 00:02:02,360 --> 00:02:05,480 Speaker 1: Wall Street because we just don't have the size of 43 00:02:05,520 --> 00:02:08,120 Speaker 1: the tech companies that many other overseas economies have. But 44 00:02:08,160 --> 00:02:10,600 Speaker 1: we still have you know, Wise Tech, Global and Area, 45 00:02:10,760 --> 00:02:13,000 Speaker 1: and some of these guys have done really, really well 46 00:02:13,160 --> 00:02:16,760 Speaker 1: in recent times. I think the Tech sub index is 47 00:02:16,800 --> 00:02:20,480 Speaker 1: the best of the ASEX two hundred and eleven. What 48 00:02:20,560 --> 00:02:21,800 Speaker 1: do you think about tech stocks? 49 00:02:22,520 --> 00:02:25,160 Speaker 2: Yeah, again, I think some of those big names you mentioned, 50 00:02:25,360 --> 00:02:27,840 Speaker 2: I think we see them fairly close to fair value, 51 00:02:27,840 --> 00:02:29,760 Speaker 2: Wise Tech being one I think might be trading at 52 00:02:29,760 --> 00:02:32,359 Speaker 2: a marginal discount. I mean, for the most part, a 53 00:02:32,360 --> 00:02:34,720 Speaker 2: lot of these big names are high quality companies. We 54 00:02:34,919 --> 00:02:39,280 Speaker 2: give them remote rating, which is part of our quality framework. 55 00:02:39,440 --> 00:02:42,639 Speaker 2: So Wise Tech and RIR examples of that. Again, they've 56 00:02:42,639 --> 00:02:45,760 Speaker 2: had a really good year and the sector the way 57 00:02:45,800 --> 00:02:48,480 Speaker 2: we see it looks a little bit expensive, but once again, 58 00:02:48,520 --> 00:02:51,200 Speaker 2: in look, there are pockets throughout the sector that do 59 00:02:51,280 --> 00:02:54,720 Speaker 2: look cheap. I think AX will be one name that 60 00:02:54,760 --> 00:02:57,120 Speaker 2: we think has probably been a bit oversold and there 61 00:02:57,120 --> 00:02:59,480 Speaker 2: looks like there's some value in that particular name. 62 00:03:00,000 --> 00:03:02,120 Speaker 1: Okay, let's move to the other end of the spectrum, 63 00:03:02,120 --> 00:03:05,840 Speaker 1: at least in terms of performance recently. The resources companies, 64 00:03:05,840 --> 00:03:08,480 Speaker 1: and I say that very very generically because you have 65 00:03:08,560 --> 00:03:13,040 Speaker 1: the big MINERSOBHP, FIRS, a few metals obviously hit by 66 00:03:13,040 --> 00:03:16,600 Speaker 1: iron ore prices, you've had other commodity plays and then 67 00:03:16,639 --> 00:03:18,680 Speaker 1: you have the oil and gas guys. Woodsides had a shaka. 68 00:03:20,000 --> 00:03:23,320 Speaker 1: I mean, start with the big three miners. It's all 69 00:03:23,360 --> 00:03:25,800 Speaker 1: about China, but I mean, what are the prospects for them? 70 00:03:26,120 --> 00:03:29,160 Speaker 2: Yeah, Look, I think that's another sort of challenging question 71 00:03:29,200 --> 00:03:31,120 Speaker 2: at the moment for markets. I mean, I'm sure many 72 00:03:31,120 --> 00:03:33,079 Speaker 2: of your listeners will be aware of the narrative. Over 73 00:03:33,080 --> 00:03:37,280 Speaker 2: the last two decades, really, China has urbanized. It's had 74 00:03:37,360 --> 00:03:42,360 Speaker 2: huge infrastructure spinning packages, bridges, roads, residential construction, and that's 75 00:03:42,400 --> 00:03:46,560 Speaker 2: pushed demand for our bolt commodity exports to very elevated 76 00:03:46,640 --> 00:03:49,640 Speaker 2: levels for a very long time. But the question is 77 00:03:49,840 --> 00:03:52,680 Speaker 2: can that keep on going? And where a little cautious 78 00:03:52,720 --> 00:03:56,040 Speaker 2: on that outlook. We think the story around urbanization is 79 00:03:56,080 --> 00:03:59,720 Speaker 2: mostly done. China's modernized its infrastructure and on a per 80 00:03:59,800 --> 00:04:03,080 Speaker 2: cap but a basis it looks relatively similar to the West. 81 00:04:03,200 --> 00:04:05,640 Speaker 2: It's got a shrinking population too, so a lot of 82 00:04:05,640 --> 00:04:10,280 Speaker 2: those sort of tailwinds that drove the mining boom look 83 00:04:10,400 --> 00:04:13,640 Speaker 2: like they might be fading, and that does pose a 84 00:04:13,720 --> 00:04:16,279 Speaker 2: risk for that very large and important sector for our market. 85 00:04:17,080 --> 00:04:25,040 Speaker 1: Stay with me, Lachlan will be back in a minute. 86 00:04:26,279 --> 00:04:29,800 Speaker 1: My guest this morning is Lachlan Halloway, equity market strategist 87 00:04:29,920 --> 00:04:33,640 Speaker 1: at morning Star. I wouldn't mind jumping down between large 88 00:04:33,720 --> 00:04:35,920 Speaker 1: and small caps because for a couple of years, all 89 00:04:35,920 --> 00:04:38,120 Speaker 1: the small cap investors have been telling us now is 90 00:04:38,120 --> 00:04:42,280 Speaker 1: the time to invest in small caps. Certainly an evaluation basis, 91 00:04:42,440 --> 00:04:46,240 Speaker 1: large caps are relatively expensive to small caps. What's your 92 00:04:46,279 --> 00:04:47,360 Speaker 1: take on that though. 93 00:04:47,760 --> 00:04:50,640 Speaker 2: Yeah, look, I think that's a fair characterization. I mean, 94 00:04:50,839 --> 00:04:53,720 Speaker 2: the top twenty, the ASX twenty at the moment we 95 00:04:53,760 --> 00:04:57,279 Speaker 2: see it trading, I think about fifteen percent over valued 96 00:04:57,400 --> 00:05:01,400 Speaker 2: on a market weighted basis, so fairly expensive on those grounds. 97 00:05:02,360 --> 00:05:03,960 Speaker 2: We look a bit further down the list to the 98 00:05:04,000 --> 00:05:07,080 Speaker 2: smaller end of the market, and they do look cheaper. 99 00:05:07,120 --> 00:05:11,200 Speaker 2: In general, there's pockets where it's more expensive and relatively cheaper. 100 00:05:11,240 --> 00:05:14,159 Speaker 2: But I think that's a fair characterization that on at 101 00:05:14,200 --> 00:05:17,640 Speaker 2: a sort of intrinsic basis, a fundamentals basis, the valuations 102 00:05:17,680 --> 00:05:20,080 Speaker 2: of the top of the market as a general rule 103 00:05:20,160 --> 00:05:22,360 Speaker 2: look extended and that doesn't seem to be the case 104 00:05:22,480 --> 00:05:23,520 Speaker 2: for the smaller names. 105 00:05:23,880 --> 00:05:25,480 Speaker 1: Okay, so where are the opportunities? 106 00:05:26,240 --> 00:05:28,720 Speaker 2: Yeah? So, I mean we see a couple of opportunities, 107 00:05:28,720 --> 00:05:30,880 Speaker 2: and again there's sort of pockets. Despite the fact that 108 00:05:30,920 --> 00:05:33,440 Speaker 2: the market look expensive, we do see pockets of value 109 00:05:33,920 --> 00:05:37,599 Speaker 2: dotted around the place. One sector that I would call 110 00:05:37,640 --> 00:05:40,480 Speaker 2: out in the that sort of material space would be 111 00:05:40,600 --> 00:05:43,800 Speaker 2: would be lithium. That's a sector that's been under quite 112 00:05:43,839 --> 00:05:46,200 Speaker 2: a lot of pressure this year. I mean, a ninety 113 00:05:46,200 --> 00:05:49,480 Speaker 2: peaked trough fall in the price of a commodity is 114 00:05:49,520 --> 00:05:52,320 Speaker 2: a pretty pig knock to where they put it mildly, 115 00:05:52,839 --> 00:05:56,239 Speaker 2: So I mean that sector though we think we're starting 116 00:05:56,279 --> 00:05:59,000 Speaker 2: to see the sort of supply side response that we 117 00:05:59,040 --> 00:06:02,599 Speaker 2: would expect in such a low price environment. We're seeing curtailments, 118 00:06:02,839 --> 00:06:06,560 Speaker 2: most recently in China at a higher cost of piolite 119 00:06:06,960 --> 00:06:09,520 Speaker 2: lithium mind, which should start to bring the market and 120 00:06:09,560 --> 00:06:12,440 Speaker 2: our view more into balance. And you know, I mean 121 00:06:12,520 --> 00:06:14,800 Speaker 2: lithin at the moment's trading at about eleven thousand US 122 00:06:14,839 --> 00:06:16,880 Speaker 2: dollars a ton, and we think a sort of long 123 00:06:16,960 --> 00:06:20,320 Speaker 2: run price of around US twenty thousand dollars, which is 124 00:06:20,320 --> 00:06:24,800 Speaker 2: based on our marginal cost assumption, is achievable. And a 125 00:06:24,800 --> 00:06:27,160 Speaker 2: lot of the lithium names on our list are trading 126 00:06:27,160 --> 00:06:31,000 Speaker 2: at pretty steep discounts, reflecting where lithium market is the 127 00:06:31,000 --> 00:06:32,880 Speaker 2: moment now and where we think the lithium price will head. 128 00:06:33,560 --> 00:06:36,960 Speaker 1: And underlying that is that long term there's still going 129 00:06:37,000 --> 00:06:38,960 Speaker 1: to be plenty of demand for lithium. 130 00:06:39,320 --> 00:06:41,120 Speaker 2: That's exactly right. So we've got the demand story there. 131 00:06:41,120 --> 00:06:44,880 Speaker 2: I think we know that the TV it's the deconversation transition. 132 00:06:45,320 --> 00:06:48,920 Speaker 2: And on the supply side, we've got the curtailments coming 133 00:06:48,960 --> 00:06:51,240 Speaker 2: in now, which which should take some of this plot 134 00:06:51,279 --> 00:06:53,039 Speaker 2: of the market and bring it more into balance. We 135 00:06:53,440 --> 00:06:56,680 Speaker 2: had that huge undersupply condition in twenty twenty two which 136 00:06:57,000 --> 00:06:59,839 Speaker 2: pushed prices through the roof, and then that story unwound. 137 00:07:00,279 --> 00:07:02,840 Speaker 2: Now it looks like we're sort of I know, as 138 00:07:02,839 --> 00:07:05,720 Speaker 2: you say, it's cautiously always, but perhaps approaching a floor 139 00:07:05,760 --> 00:07:08,000 Speaker 2: as some of that supplies being brighter the market, and 140 00:07:08,400 --> 00:07:10,040 Speaker 2: you know in the in the sort of medium term 141 00:07:10,120 --> 00:07:12,840 Speaker 2: that should that should cause the market, we think to rebalance. 142 00:07:13,440 --> 00:07:16,080 Speaker 1: What about some of the retailers and the consumer discretionary stocks. 143 00:07:16,760 --> 00:07:19,680 Speaker 2: Yeah, so it varies. I think we see as I 144 00:07:19,680 --> 00:07:21,840 Speaker 2: think as a general rule, it looks like that larger 145 00:07:21,960 --> 00:07:25,640 Speaker 2: end of the cyclicals market probably is the evaluations. They 146 00:07:25,680 --> 00:07:28,640 Speaker 2: look a little bit extended. One thing that's positive though, 147 00:07:28,800 --> 00:07:30,920 Speaker 2: and I'd say particularly more for the smaller end of 148 00:07:30,920 --> 00:07:34,000 Speaker 2: the market, which was kind of you know, thrown out 149 00:07:34,240 --> 00:07:36,600 Speaker 2: with the concerns around the economics lighter in the recession. 150 00:07:36,600 --> 00:07:38,800 Speaker 2: That's sort of the narrative, you know, twelve months or 151 00:07:38,800 --> 00:07:41,560 Speaker 2: so ago, is that we are seeing some green shoots 152 00:07:41,600 --> 00:07:44,040 Speaker 2: for the consumer. You know, the trading updates that came 153 00:07:44,080 --> 00:07:47,440 Speaker 2: out of reporting season look largely speaking, I think the 154 00:07:47,600 --> 00:07:51,880 Speaker 2: characterize them as pretty positive. Whether that's the early stage 155 00:07:52,120 --> 00:07:55,000 Speaker 2: three tax cut coming through and starting to help the consumer, 156 00:07:55,080 --> 00:07:58,520 Speaker 2: perhaps the worst of the Monty tightening is sort of 157 00:07:58,560 --> 00:08:00,840 Speaker 2: behind us. It seems like they're is a little bit 158 00:08:00,880 --> 00:08:03,960 Speaker 2: of momentum coming into the consumer and we do envision 159 00:08:03,960 --> 00:08:07,000 Speaker 2: a better year in general for retail than last year. 160 00:08:07,560 --> 00:08:10,640 Speaker 1: Okay, and anything else within the industrial space worth of mention. 161 00:08:11,480 --> 00:08:15,239 Speaker 2: Yeah, Look, one name that really impressed us in earning season, 162 00:08:15,400 --> 00:08:18,400 Speaker 2: which is one of our best ideas, is Brambles. You know, 163 00:08:18,440 --> 00:08:22,120 Speaker 2: that company had a really strong showing and it's sort 164 00:08:22,160 --> 00:08:23,840 Speaker 2: of long run. We know, we were pretty optimistic on 165 00:08:23,880 --> 00:08:25,840 Speaker 2: the name coming into reporting season and it sort of 166 00:08:25,840 --> 00:08:29,160 Speaker 2: beat our fairly positive expectations. So we still think it 167 00:08:29,600 --> 00:08:32,040 Speaker 2: looks undervalued and it seems like it's a pretty good 168 00:08:32,040 --> 00:08:32,839 Speaker 2: story building there. 169 00:08:33,320 --> 00:08:35,720 Speaker 1: So Bramble, So Michael Thompson and I are my co 170 00:08:35,840 --> 00:08:37,440 Speaker 1: host and Fear and Greed. He always lasted a week 171 00:08:37,440 --> 00:08:40,160 Speaker 1: cause I've always loved Brambles ever since. Well it's probably 172 00:08:40,280 --> 00:08:43,560 Speaker 1: fifteen years ago. They actually lost a million palettes. They 173 00:08:43,600 --> 00:08:45,200 Speaker 1: just disappeared. I thought it was a great story. How 174 00:08:45,240 --> 00:08:47,439 Speaker 1: do you lose a million palets? Anyway, they managed it. 175 00:08:47,640 --> 00:08:49,640 Speaker 1: But what is it about Bramble because that must be 176 00:08:49,760 --> 00:08:53,439 Speaker 1: very tied to the economic cycle. I'd imagine with Brambles 177 00:08:53,800 --> 00:08:56,320 Speaker 1: it's just affected as a packaging company. What is it 178 00:08:56,360 --> 00:08:57,880 Speaker 1: that's particularly interesting about it? 179 00:08:58,240 --> 00:08:59,800 Speaker 2: Well, the thing we like about it, and it's sort 180 00:08:59,840 --> 00:09:04,599 Speaker 2: of of our framework of assessing companies, is its competitive advantages. 181 00:09:04,880 --> 00:09:07,240 Speaker 2: We think it has a moat cross advantage over at 182 00:09:07,240 --> 00:09:10,679 Speaker 2: smaller competitors that had that first move advantage and dominates 183 00:09:10,880 --> 00:09:13,720 Speaker 2: its base in palettes. It looks like a high quality 184 00:09:13,760 --> 00:09:16,200 Speaker 2: company and its competitors and as a general over the 185 00:09:16,200 --> 00:09:19,199 Speaker 2: long term, that's what we think is a core valuation driver. 186 00:09:19,920 --> 00:09:21,920 Speaker 2: So the moat is the part we really like about 187 00:09:21,920 --> 00:09:22,319 Speaker 2: the name. 188 00:09:22,679 --> 00:09:24,560 Speaker 1: Lachlan, you are certainly one of my favorite people I've 189 00:09:24,559 --> 00:09:27,200 Speaker 1: interviewed recently because someone else that likes Branbles. Thank you 190 00:09:27,280 --> 00:09:29,040 Speaker 1: very much for talking to me this morning on Fear 191 00:09:29,080 --> 00:09:32,680 Speaker 1: and Greed. Thank you those morning Star equity market strategist 192 00:09:32,840 --> 00:09:36,000 Speaker 1: Lachlan Hallaway. This is the Fear and Greed, a business interview. 193 00:09:36,000 --> 00:09:38,440 Speaker 1: Remember this is general information only, and you should always 194 00:09:38,440 --> 00:09:42,200 Speaker 1: see professional advice before making investment decisions. Join us every 195 00:09:42,200 --> 00:09:44,160 Speaker 1: morning for the full episode of Fear and Greed, daily 196 00:09:44,200 --> 00:09:46,680 Speaker 1: business news for people who make their own decisions. I'm 197 00:09:46,679 --> 00:09:52,520 Speaker 1: Seane Elmer. Enjoy your day.