Company Interview / How the new iPhone could lift this Aussie retailer

Key points:

Oil's reaction to global events and uncertainty on investment.Financial sector's gains with potential limits due to rate cuts.Tech sector opportunities amid AI progression and antitrust challenges for companies like Google and Apple.

James Gerrish from Shaw and Partners and Market Matters focuses on commodities, noting oil's unpredictability. Despite global growth concerns, he states oil hasn't reacted positively to bullish news like Middle East tensions, making it uncertain for investment currently.

James sees financials benefiting from recent rate cuts, although J.P. Morgan and Goldman Sachs suggest optimism on bank margins may be overdone. With potential cuts from the RBA, he indicates future gains might not match past performance, mentioning Westpac's (ASX: WBC) 50% rise due to margin expansion.

In tech, James highlights US market breadth amid antitrust cases against major entities like Google (NASDAQ: GOOG). He mentions investments in companies like Nvidia (NASDAQ: NVDA) and Apple (NASDAQ: AAPL), identifying AI advancements and product launches as key growth drivers, positively impacting sales outlets like JB Hi-Fi (ASX: JBH).

Full unedited transcript below:

0:00

Let's just put the focus on commodities to start at least. And that's with James Garish from Shaw and Partners and Market Matters. Hey James, nice to have a chance to chat with you again. Um, just on oil. It's been in such a downward trend for a long time, really solidified around that narrative that we're seeing slowing global growth, particularly in China. But it's such a difficult beast to predict, isn't it? Because then you get, you know, hurricanes and you get Middle East tensions. So what's your view?

0:32

Morning, Nadine. Nice to talk to you as well. It's a you know, it's been a rangebound market for oil for an extended period of time. So you've got one of the things I, you know, often look for is, is news that should be net bullish for something and the underlying commodity not reacting to that. And I think that's been the case with oil I know this you know we've got concerns about global growth etc.. But I think they're well known well understood and been digested by the market. We then get these supply, um shocks, we get instability in the Middle East, etc., which we should be a net bullish scenario for oil and it's simply hasn't been over. Um, over the medium term. So, uh, to me, it's probably, you know, 5050 where oil goes here, you've got competing factors, you've got, um, the price is not really reacting on the positive side to news that it should be theoretically bullish. Um, so for me, it's all a little bit too hard in the oil space. So we don't really have any exposure to oil at this point in the cycle. Nadine okay. So if you're not

1:32

interested in oil, I'm thinking about the sectors that have outperformed through 2024 being well, tech. Yeah we can talk about that maybe. But also financials. Um how are you how are you. You know, looking at that narrative as we move into 2025 and yes post FOMC with the RBA potentially not cutting until until early next year.

1:57

Yes, I mean the backdrop for financials is obviously been very positive. And the uh underlying equities have performed accordingly. So um, I think I, you know, a couple of comments at the back end or early last week, I should say from, uh, J.P. Morgan and Goldman's just around the impact of interest rates on bank margins or margins or financial institutions. So they've basically come out and said that the market is too optimistic on, um, on margins here and therefore earnings. They've had obviously, the tailwind of rising rates. So bank margins typically expand in a rising rate environment. And now we go into you know we've got the FOMC um deciding on interest rates tonight. Um you know the market's pricing and whatever it is whether they go 25 or 50, the market's saying that there's about a 65% chance of a 50 basis point rate cut tonight. But whatever the case rates are going lower. And in that environment, um, bank margins typically come under a little bit better pressure. And there's two, you know, major Wall Street banks that

2:57

highlighted that, uh, that, that case, uh, last week. Uh, so, you know, to me, I think financials are a little bit more, you know, the runner's been had. I think if you look forward, I don't think we'll experience the same four month gains as we've had. Um, just gone. So, you know, Westpac up 50% is a pretty phenomenal performance. And it has all been on margin expansion, on on multiple expansion, or primarily on multiple expansion. There has been some improving dynamics in the space, but multiple expansion has been the main driver. So if though we do get this interest rate cutting cycle coming to the fore, potentially that could be supportive of markets, global markets. Could that be a benefit to a macquarie you know, as opposed to the big four banks.

3:44

Yeah it depends what plays out from from here. So obviously the Goldilocks scenario is what we're all, you know aiming for for you know, the narrow landing uh, that was being uh, you know, that was always going to be such a hard challenge. Well it looks like it's taking place so that hardly, you know, that that that, um, Goldilocks scenario is that growth holds up. Um, it slows but holds up. Interest rates come back off the off the top. Um, there's some pretty significant interest rate cuts being priced in the market. There's about 200. And, um, you know, 202 hundred basis points, um, or 250 basis price in the US market, um, in the next 12 months. So that is that typically doesn't correlate with, um, sort of a smooth landing that generally correlates that's that, that that volume of cuts would correlate with a more, um, a deeper economic contraction. So if we get the Goldilocks scenario, yes, that would be very positive for Macquarie. I think, you know, the other thing that you need to be conscious of

4:44

Macquarie is their, um, US dollar denominated earnings. So, um, you know, the US dollar has been weak. It's trading back at the bottom of its trading range around 101 hundred, uh, for the US dollar index, I think the US dollar probably goes lower. So that could be a headwind for, uh, Macquarie. But all things being equal, Goldilocks scenario equals more activity on the corporate side. And you might actually see an uptick in M&A, uh, when, uh, rates actually start to come back. Um, that can prompt, um, you know, be the catalyst for corporates to deploy capital, which is positive for Macquarie.

5:19

Yeah. Okay. So positive for Macquarie. Uh, we will be watching that one. Of course. Now um, when it comes to tech tech here in Australia. You know, wise tech comes to mind. Technology one zero 100 a little bit of an acquisition yesterday. Um, but, uh, we are seeing the breadth of the US markets widening. So is the best you know is the best of it over for us big tech, particularly when you think of some of the antitrust cases being brought against, you know, the likes of Google.

5:56

Uh, I'd say probably not. So uh, Google's you know, you look at share prices have come off the top. So, you know, Google had pulled back 25% from its recent highs. So we bought that, um, uh, stock last week for our international equities portfolio. I think those um, the, the antitrust claims will prove to be, um, something that they can work through. And the market's probably got a little bit to concerned about in the short term. Uh, I think there's a couple of different stages of, you know, the AI trade, if you like, that is um, that is important to note. Obviously, the infrastructure style, um, uh, companies do best, uh, at the forefront. So that's the obviously the chip chipmakers Nvidia, etc. but at the back end of the cycle, you start to see the, um, the device companies, uh, come to the fore. So the likes of Apple would be, um, a company to look for their I know Apple's had a phenomenal run. We own Apple. Um we're going to continue to hold that. But you think about you know, they launch the iPhone 16 Pro over the

6:56

weekend. Uh, sales initially are a little bit slow. Um, but this is going to be a game changer for them. So this movement towards, um, I there's going to improve the efficiency of everything that we do. Nadine. Um, which is going to be helpful, is going to drive a big, um, uh, a big, uh, refresh of the products we own. And it's going to be a positive for the likes of Apple is going to be a positive for the likes of JB Hi-Fi and others that sell those products. So to me, I think this is going to be, um, sorry, we're moving down more into the, uh, the the derivatives of the AI, um, big push into AI. And Apple is clearly one of those. So big tech, it's so broad. So, um, some companies will do better at some times and others will do better at others.