Caroline Cai from Pzena Investment Management speaks to The Inside Network’s James Dunn for our IN60 series. The Inside Adviser
The historic outperformance of big tech stocks in the US may look like a global outlier, but many developed markets (including ours) have high levels of concentration risk. That may not be the case for long, with a likely softening interest rate environment set to re-order indexes around the world.
ASX down 0.2%, miners drag as Macquarie hits new highs
ASX weaker, Macquarie stands out, gas merger to go green
The ASX200 (ASX: XJO) fell 0.2% on Wednesday continuing the negative week with materials continuing to push the market lower, down 1%.
Real estate was also hit with the likes of Goodman Group (ASX: GMG) down 2.1% on higher bond rates.
The highlight was the financial sector which finished 10.6% higher as Macquarie (ASX: MQG) offer a strong update to the market.
The Santos (ASX: STO) and Oil Search (ASX: OSH) merger looks set to proceed with management of the former highlighted ‘green opportunity’ that will be unlocked by the deal.
On the one hand they touted the high-quality, low-cost growth assets that will close to double and ultimately support stronger free cash flow.
With these funds they intend to pursue a number of clean energy projects including air capture in the Cooper Basin and hydrogen; both companies finished modestly higher.
According to management BHP (ASX: BHP) contributed $34 billion to the Australian economy in 2021, comprising $11 billion in supplier payments, $6 billion in dividends and $12 billion in tax; shares finished 1% lower despite a 5% rally in the iron ore price.
Qube’s expansion, Macquarie’s record higher
Qube Holdings (ASX: QUB) jumped 4.6% after the company announced the acquisition of the Newcastle Agri Terminal for $90 million.
The port will be purchased from grain traders CBH and Viterra, funded through undrawn debt facilities and see earnings further diversified into the booming NSW grain sector.
Shares in Macquarie (ASX: MQG) reached a new all-time high finished 4.7% to the positive after announcing that half year profit to the end of September is set to double 2020’s result. It will be down on the first half of 2020 but still a strong result.
The annuity style businesses like banking have benefitted from lower provisions, however growth in asset management was broadly flat as their recent acquisition is unlikely to be accretive.
They are also facing strong comparables after the sale of their rail businesses in 2020. Macquarie Capital continues to perform strongly, benefitting from the sale of their UK Smart Meter portfolio and continued merger and acquisition activity.
More importantly, realisations through which Macquarie sells assets it managed and locks in management fees are set to increase as the global economy returns to normal.
US markets weaken ahead of debt ceiling, defensives outperformance, Lululemon smashes expectations
US markets were weaker once again with the Nasdaq pushing 0.6% lower underperforming, the Dow Jones, down 0.2, and the S&P 500 down 0.1%.
US Treasury Secretary overnight sent a letter to lawmakers noting that without an increase in the debt ceiling the Government would not be able to pay its own bills and would be forced to default.
As has been the case in every such event since 2016, the market barely moved as investors now understand that a default would only ever occur by choice, given the Fed’s ability to continue to purchase Government bonds.
Energy, materials and tech stocks dragged the market lower with defensive names returning to the fore despite a weakening economy.
The Beige Book showed that growth slowed in July as the Delta variant hit, whilst record job openings of 10.9 million were offset by a fall in job hires to 6.7 million suggesting the labour market isn’t functioning effectively.
Athleisure wear apparel maker Lululemon (NYSE: LULU) smashed expectations, jumping 10% in after hours trade after reporting a more than doubling in both sales and profit during the quarter.
