1
00:00:00,040 --> 00:00:02,560
Speaker 1: So let's get to our guest, Martin Lecos, Division director

2
00:00:02,600 --> 00:00:07,280
Speaker 1: at McQuary Wealth Management. Martin, tough times for sure, and

3
00:00:07,440 --> 00:00:12,079
Speaker 1: more and more we're hearing from strategists that declining c

4
00:00:12,240 --> 00:00:14,480
Speaker 1: p I. I mean, even if we if we get that,

5
00:00:14,720 --> 00:00:17,759
Speaker 1: if you combine that with with wages that are high

6
00:00:17,880 --> 00:00:22,400
Speaker 1: and and sticky, that it will lead to lower corporate profits.

7
00:00:22,440 --> 00:00:25,800
Speaker 1: So it's a kind of lose lose scenario here with

8
00:00:26,079 --> 00:00:32,000
Speaker 1: inflation either high or declining. Your thoughts, your good morning. Look,

9
00:00:32,040 --> 00:00:36,720
Speaker 1: it's interesting because obviously the corporates basically use the pandemic

10
00:00:36,840 --> 00:00:39,600
Speaker 1: to improve their position. So hence we sort of very

11
00:00:39,600 --> 00:00:42,960
Speaker 1: strong earnings growth right through the pandemic, which is one

12
00:00:43,000 --> 00:00:45,240
Speaker 1: of the factors that saw markets rise to the heady

13
00:00:45,320 --> 00:00:47,760
Speaker 1: levels that they did. And so there's still a buffer

14
00:00:47,800 --> 00:00:50,000
Speaker 1: in corporate world. But there's absolutely no doubt we still

15
00:00:50,000 --> 00:00:53,000
Speaker 1: have an expectation that earnings will be declining in this

16
00:00:53,320 --> 00:00:55,840
Speaker 1: in this environment that is, you know, slowing broad based

17
00:00:55,840 --> 00:00:58,160
Speaker 1: economic growth and the impacts of inflation and obviously the

18
00:00:58,600 --> 00:01:02,279
Speaker 1: impacts of cost of doing business. But the question mark

19
00:01:02,360 --> 00:01:05,200
Speaker 1: really is what is that actual decline in earnings growth?

20
00:01:05,360 --> 00:01:07,600
Speaker 1: And we don't think it's going to be as weak

21
00:01:08,080 --> 00:01:11,600
Speaker 1: as we had seen in previous prerecession periods, but it

22
00:01:11,720 --> 00:01:13,959
Speaker 1: is definitely going to come off and that's probably the

23
00:01:13,959 --> 00:01:17,000
Speaker 1: next stage for markets. So when we look at the

24
00:01:17,040 --> 00:01:19,760
Speaker 1: valuation of markets in particular in terms of price to

25
00:01:19,880 --> 00:01:23,600
Speaker 1: earnings growth, we still see markets aren't cheap yet um

26
00:01:23,640 --> 00:01:26,440
Speaker 1: and until we we see really marks that look cheap,

27
00:01:26,520 --> 00:01:29,600
Speaker 1: we won't see a full reversal in those markets. But

28
00:01:29,680 --> 00:01:32,920
Speaker 1: we are expecting to see ongoing beer market rallies from

29
00:01:32,959 --> 00:01:34,800
Speaker 1: time to time, which is obviously what we saw last week.

30
00:01:35,920 --> 00:01:38,240
Speaker 1: Well Martin, it gives us sense. You know, when you

31
00:01:38,280 --> 00:01:40,480
Speaker 1: look at the earning season coming up, it's going to

32
00:01:40,520 --> 00:01:42,760
Speaker 1: be about their forecast, isn't it really? And you know

33
00:01:42,840 --> 00:01:45,880
Speaker 1: there's some which last time disappointed in terms of what

34
00:01:45,920 --> 00:01:49,000
Speaker 1: they were saying about, you know, looking ahead to this

35
00:01:49,200 --> 00:01:51,120
Speaker 1: quarter they're reporting on and that should be interesting what

36
00:01:51,480 --> 00:01:54,280
Speaker 1: they deliver. Yeah, very much. Look, there's no question the

37
00:01:54,320 --> 00:01:56,920
Speaker 1: forward statements are probably key and critical in this type

38
00:01:56,920 --> 00:02:00,880
Speaker 1: of market environment. I mean, the markets are expecting weaker earnings,

39
00:02:00,920 --> 00:02:04,120
Speaker 1: are expecting that analysts will be forced to go into

40
00:02:04,280 --> 00:02:07,000
Speaker 1: downgrade mode. We certainly saw that here in Australia in

41
00:02:07,040 --> 00:02:10,680
Speaker 1: our last reporting season, where we had more downgrades and upgrades,

42
00:02:10,720 --> 00:02:13,320
Speaker 1: but it just it wasn't as bad had been that

43
00:02:13,400 --> 00:02:17,360
Speaker 1: had been maybe anticipated. So the next couple of earning seasons,

44
00:02:17,360 --> 00:02:19,320
Speaker 1: the next quarters in the US and here in Australia,

45
00:02:19,600 --> 00:02:21,840
Speaker 1: the next six month reporting season is really going to

46
00:02:21,919 --> 00:02:24,880
Speaker 1: be very very interesting to see where it actually all lands.

47
00:02:25,600 --> 00:02:28,320
Speaker 1: Do do companies? Because if we see wages high and

48
00:02:28,360 --> 00:02:31,080
Speaker 1: we know they're sticky, they're hard to bring down. Do

49
00:02:31,200 --> 00:02:35,680
Speaker 1: companies then that deal with costs more in materials or

50
00:02:35,720 --> 00:02:39,040
Speaker 1: commodities that will fall, do they look more attractive than

51
00:02:39,280 --> 00:02:42,919
Speaker 1: high labor companies. You're not yet, ryan, you know, the

52
00:02:43,280 --> 00:02:48,000
Speaker 1: particularly material side still relatively elevated at this stage. So

53
00:02:48,240 --> 00:02:50,760
Speaker 1: although you know, starting to come off with some signs

54
00:02:50,880 --> 00:02:54,720
Speaker 1: of improvements in terms of supply so those supply chain

55
00:02:54,760 --> 00:02:57,120
Speaker 1: disruptions are certainly improving if you look at a whole

56
00:02:57,240 --> 00:03:01,519
Speaker 1: range of different dynamics, particularly purchasing manner the index surveys,

57
00:03:01,560 --> 00:03:04,000
Speaker 1: but you know, we're not we're not there yet, so

58
00:03:04,160 --> 00:03:07,200
Speaker 1: you might get a counterbalance of you know, input costs

59
00:03:07,240 --> 00:03:09,280
Speaker 1: coming down, but some of those sticky elements that you've

60
00:03:09,280 --> 00:03:12,520
Speaker 1: talked about remaining elements elevated. It's just that at the

61
00:03:12,560 --> 00:03:14,359
Speaker 1: end of the day, businesses are now just going to

62
00:03:14,480 --> 00:03:16,800
Speaker 1: have to be more and more prepared to be operating

63
00:03:16,840 --> 00:03:20,680
Speaker 1: in a higher inflation environment. Market, well, you know, we

64
00:03:20,800 --> 00:03:24,760
Speaker 1: look at what's happening, we see these odd bull rallies

65
00:03:24,760 --> 00:03:27,799
Speaker 1: within the band market. Are they exactly that one bue

66
00:03:27,800 --> 00:03:31,480
Speaker 1: of the question? And how do you navigate this? You're ecly,

67
00:03:31,480 --> 00:03:34,920
Speaker 1: certainly at this stage you would expect to see further

68
00:03:34,960 --> 00:03:38,840
Speaker 1: ball market sorry, bad market rallies, um, because at the

69
00:03:38,920 --> 00:03:40,400
Speaker 1: end of the day, we are seeing, you know, very

70
00:03:40,480 --> 00:03:43,600
Speaker 1: volatile markets. When we see markets get sold down, as

71
00:03:43,600 --> 00:03:46,160
Speaker 1: we saw for example in the reaction to the employment

72
00:03:46,240 --> 00:03:48,400
Speaker 1: data on Friday and with an air stake down four percent,

73
00:03:48,520 --> 00:03:51,920
Speaker 1: these aren't ordinary or normal moves. So we've got to

74
00:03:51,960 --> 00:03:53,800
Speaker 1: get used to that to some extent, but we will

75
00:03:53,960 --> 00:03:57,240
Speaker 1: find that markets get over sold navigating through that, we'll

76
00:03:57,240 --> 00:03:59,280
Speaker 1: look at the end of the day, we continue to

77
00:03:59,320 --> 00:04:02,680
Speaker 1: really run very diversified portfolios. I think that's the best

78
00:04:02,680 --> 00:04:05,960
Speaker 1: way to be approaching this high, high degree of volatility,

79
00:04:05,960 --> 00:04:08,880
Speaker 1: and obviously with a high level of caution as well.

80
00:04:09,360 --> 00:04:11,839
Speaker 1: You're turning points for us. It will really be when

81
00:04:11,960 --> 00:04:16,040
Speaker 1: central bank narrative starts to change around the momentum of

82
00:04:16,320 --> 00:04:19,080
Speaker 1: interest rate moves by them, and even when markets started

83
00:04:19,120 --> 00:04:21,880
Speaker 1: to anticipate that, will start to see central banks either

84
00:04:21,880 --> 00:04:25,720
Speaker 1: easing back or then placing monetary policy on hold or

85
00:04:25,760 --> 00:04:28,479
Speaker 1: a pause for some time to see the impacts. But

86
00:04:28,520 --> 00:04:30,599
Speaker 1: we're not quite there yet, and it does look like

87
00:04:30,720 --> 00:04:33,440
Speaker 1: that we won't say that onto alarm until the middle

88
00:04:33,480 --> 00:04:37,200
Speaker 1: of the end of this year. Yeah, So you mentioned

89
00:04:37,240 --> 00:04:40,640
Speaker 1: alternative asset classes. One of the tricky aspects about going

90
00:04:40,680 --> 00:04:44,760
Speaker 1: into say private markets is they're not marking the market

91
00:04:44,960 --> 00:04:47,040
Speaker 1: like other assets, so you're always wondering whether or not

92
00:04:47,400 --> 00:04:51,120
Speaker 1: you're overpaying, I suppose, But then sometimes that that lower

93
00:04:51,200 --> 00:04:53,840
Speaker 1: volatility can be your friend, right, So how do you

94
00:04:53,920 --> 00:04:59,080
Speaker 1: discern between the two? So certainly we've been right through

95
00:04:59,120 --> 00:05:03,400
Speaker 1: this year increased our allocation to the alternative as a classes. So,

96
00:05:03,440 --> 00:05:05,760
Speaker 1: as you said, Brian, you know things like private equity,

97
00:05:06,279 --> 00:05:09,720
Speaker 1: things like hedge funds, you know, long short funds, those

98
00:05:09,800 --> 00:05:12,600
Speaker 1: assets that have got either longer duration so they go

99
00:05:12,720 --> 00:05:16,520
Speaker 1: through this cycle um and also those assets that basically

100
00:05:16,520 --> 00:05:18,880
Speaker 1: have low or no correlation to the global financial markets

101
00:05:18,920 --> 00:05:21,960
Speaker 1: on a day to day basis. But having said that, yes,

102
00:05:22,120 --> 00:05:24,640
Speaker 1: you've you've got to be obviously doing your homework or

103
00:05:24,760 --> 00:05:28,680
Speaker 1: be prepared to ensure that managers that you're using doing

104
00:05:28,680 --> 00:05:31,240
Speaker 1: the homework in regards to those valuations. Quite clearly, you

105
00:05:31,279 --> 00:05:34,240
Speaker 1: can't mark the market those valuations on port follow So

106
00:05:34,240 --> 00:05:36,800
Speaker 1: it's very much then down to the credibility of some

107
00:05:36,839 --> 00:05:40,360
Speaker 1: of those managers they're using. No tell me, okay, you

108
00:05:40,480 --> 00:05:43,720
Speaker 1: diversified portfolio. Sure, you know you had sixty forty before.

109
00:05:44,000 --> 00:05:46,240
Speaker 1: You know that's the stock bond split. But I've been

110
00:05:46,240 --> 00:05:48,200
Speaker 1: asking this question of a few guests, which is is

111
00:05:48,240 --> 00:05:51,720
Speaker 1: it the other way around? Should be sixty bonds? Equities?

112
00:05:52,680 --> 00:05:56,360
Speaker 1: Probably not to that extreme rish at this stage. So

113
00:05:56,520 --> 00:05:59,800
Speaker 1: we're sort of maintaining our waitings. But where we obviously

114
00:06:00,000 --> 00:06:03,520
Speaker 1: shifted is we've under underweighted equities for the time being,

115
00:06:03,880 --> 00:06:06,239
Speaker 1: gone to those alternative assets we've just talked about also

116
00:06:06,320 --> 00:06:08,840
Speaker 1: going to real assets. So not only is that real estate,

117
00:06:08,880 --> 00:06:12,600
Speaker 1: but much bigger waitings in infrastructure. Again, it's got this

118
00:06:12,920 --> 00:06:16,000
Speaker 1: long duration. So again you don't buy and sell infrastructure

119
00:06:16,040 --> 00:06:18,480
Speaker 1: as it's on a daily basis, So you've you've got

120
00:06:18,520 --> 00:06:20,800
Speaker 1: to be considering or putting out in perspective in terms

121
00:06:20,800 --> 00:06:24,200
Speaker 1: of across the cycle as well. And then the really

122
00:06:24,200 --> 00:06:26,960
Speaker 1: within that defensive component that you've talked about. It's really

123
00:06:26,960 --> 00:06:30,080
Speaker 1: being shifting to safety. So again we're moving away from

124
00:06:30,240 --> 00:06:33,920
Speaker 1: from corporate credit and more towards the sovereign side. While

125
00:06:33,920 --> 00:06:36,400
Speaker 1: we're at this stage of the interest rate cycle. What

126
00:06:36,520 --> 00:06:39,440
Speaker 1: sort of percentage do you keep in in cash and

127
00:06:39,440 --> 00:06:42,040
Speaker 1: and by that I mean you know, liquid cash, not

128
00:06:42,240 --> 00:06:45,039
Speaker 1: cash equivalents, so that you know you get a big

129
00:06:45,040 --> 00:06:47,760
Speaker 1: sell off, maybe you take advantage of it. You look

130
00:06:47,760 --> 00:06:50,839
Speaker 1: at again depending client by client and their own situation,

131
00:06:50,920 --> 00:06:53,200
Speaker 1: but certainly it's sort of would be you know, you

132
00:06:53,240 --> 00:06:56,320
Speaker 1: would think a minimum between five and would be where

133
00:06:56,320 --> 00:06:59,400
Speaker 1: we'd be holding cash at this stage. That includes obviously

134
00:06:59,400 --> 00:07:03,159
Speaker 1: cash and term deposits, so we've got really easier access

135
00:07:03,200 --> 00:07:06,320
Speaker 1: to that liquidity. And for exactly what you've just said, Brian.

136
00:07:06,400 --> 00:07:08,320
Speaker 1: At the end of the day, there are opportunities in

137
00:07:08,360 --> 00:07:10,840
Speaker 1: the markets. There are some key key thematics that we

138
00:07:10,920 --> 00:07:15,840
Speaker 1: think of world worth investigating, things like global healthcare, cybersecurity

139
00:07:15,840 --> 00:07:19,000
Speaker 1: for example. These are these are areas and themes that

140
00:07:19,080 --> 00:07:22,200
Speaker 1: we continue to invest in. But again you've got to

141
00:07:22,240 --> 00:07:24,520
Speaker 1: be prepared that you know, you slightly but surely move

142
00:07:24,560 --> 00:07:28,600
Speaker 1: into the markets and stage those those investments. Don't try

143
00:07:28,640 --> 00:07:30,880
Speaker 1: and pick the bottom, because that's very hard to do,

144
00:07:32,200 --> 00:07:36,840
Speaker 1: Martin jaffany interested investing in China, Look, we haven't. We've

145
00:07:36,880 --> 00:07:40,760
Speaker 1: stepped away from from China's quite some time ago. I

146
00:07:40,800 --> 00:07:43,080
Speaker 1: think there will be a time to be look upping

147
00:07:43,120 --> 00:07:47,240
Speaker 1: the waitings to China or pseudo China exposures. But I

148
00:07:47,280 --> 00:07:50,760
Speaker 1: think that while we've got this the zero COVID policy

149
00:07:50,760 --> 00:07:53,520
Speaker 1: and the pandemic issue, you know, where where does the

150
00:07:53,640 --> 00:07:56,760
Speaker 1: Chinese economy actually start to bottom out. We're going to

151
00:07:56,840 --> 00:08:00,600
Speaker 1: be watching very closely this upcoming National People's Congress, particularly

152
00:08:01,040 --> 00:08:03,680
Speaker 1: commentary around how they're going to start does re stimulate

153
00:08:03,720 --> 00:08:06,080
Speaker 1: their economy, and how they actually go about that. So

154
00:08:06,120 --> 00:08:08,760
Speaker 1: it's certainly on watch for us, without a doubt. Martin,

155
00:08:09,160 --> 00:08:10,960
Speaker 1: thank you so much for joining as much and Legals

156
00:08:10,960 --> 00:08:13,920
Speaker 1: their division director Macquarie Wealth Management getting his take on

157
00:08:14,280 --> 00:08:16,280
Speaker 1: the markets. This is Bloomberg