Rudi's View | 5:02 PM
Today's update includes:
-A Conflict In Waiting?
-Banks And Super Funds
-A Comeback For Value?
-The Ongoing AI Promise
-Two New Additions
-More WiseTech Global dirt?
-FNArena Talks
-Bell Potter's Best Picks
-Best Buys & Conviction Calls
By Rudi Filapek-Vandyck, Editor
A Conflict In Waiting?
Ronald Temple, Chief Market Strategist Lazard:
"If President Trump implements tariffs and immigration controls, I would expect the FOMC to stop easing policy until it can assess the impact of such policies on inflation.
"This decision would likely lead to increased tension with the White House."
Note: Jay Powell's current term ends in May.
Banks And Super Funds
A quick update put together by strategists at Morgan Stanley points firmly in the direction of superannuation funds in Australia to explain the 2024 enigma of expensive bank share prices that seemingly keep rallying higher come hail, rain or sunshine.
Net buying of bank shares by Australia's superannuation sector has, in the words of the report, "heavily influenced sector performance and arguably pushed sector valuation to extremes".
September data released by the ABS reveal the local superannuation sector has increased its ownership of Australian banks to 29.7% from 27.9% in September 2023.
Net purchasing has remained elevated throughout the calendar year past while most other investors, including offshore institutions and local households, have been selling.
Apart from super funds, Morgan Stanley also sees net buying from passive/ETF flows this year as having provided support to bank share prices, irrespective of valuations, which are pretty much universally seen as "expensive" (and that's the mild version for putting it).
The report also highlights the issue is increasingly attracting the attention from the RBA --worried about potential stability risk-- and the Council of Financial Regulators.
The latter Council is the main coordinating body for Australia's financial regulators, bringing together the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC), the Australian Treasury and the Reserve Bank of Australia (RBA).
APRA has a review flagged into the super funds sector and its strong desire to own the local banks for 2025.
Morgan Stanley's update concludes with: "Given the valuation stretch in the Bank sector any fatigue in flow from what has been the dominant driver this year could be a trigger for multiple derate back to more normal valuation levels."
A Comeback For Value?
Your typical value investor is not leaving 2024 behind with a lot of warm, fuzzy feelings and that's putting it mildly.
Investment returns in 2024 have mostly been linked to a rather narrow selection of significant outperformers, including the banks in Australia, technology and growth stocks, and the explosion in demand for data centres on the back of the AI megatrend.
Bell Potter Equity Strategist Rob Crookston remains hopeful investors can fall in love again with the cheaper-priced 'value' segment of equities, sometime in 2025.
His reasoning is based on two core beliefs: economic growth should accelerate in 2026 and bond yields will remain higher-for-longer. Value stocks tend to perform well during an economic uptrend which should boost their earnings potential, so that's one tick of approval.
Value stocks also tend to outperform when bond yields are on the rise. Crookston admits bond yields are most likely due for a fall in the year ahead, but he also believes (hopes?) that bond yields staying higher-for-longer (i.e. they won't fall as deeply as normally would have been the case) will also help value stocks performing.
An extra bonus could stem from Trump's policies. If these policies result in higher inflation, value stocks should do well, all else remaining equal.
The three sectors identified as offering the best value opportunities in Australia, are:
-Health insurers
-Travel sector
-Energy sector
Crookston specifically mentions Medibank Private ((MPL)), nib Holdings ((NHF)), Flight Centre Travel ((FLT)) and Santos ((STO)).
That other important segment on the value side of markets, commodities and mining companies, has been significantly de-rated over the past six months or so, with only a brief reprieve in October.
Strategists at Citi see no relief in sight, despite share prices looking "cheaply" priced. The in-house view keeps Citi Neutral to Bearish on the sector, with China stimulus and the potential for a trade war next year the two big unknowns.
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