More Stock Market Turmoil for Australia, What Investors Need to Know

In this episode, Remo Greco discusses the recent turmoil affecting Australian markets, what’s driving investor uncertainty, and what it could mean for the future of investing.

DISCLAIMER: This podcast contains general financial information only. That means the information does not take into account your objectives, financial situation, or needs. Because of that, you should consider if the information is appropriate to you and your needs, before acting on it. If you’re confused about what that means or what your needs are, you should always consult a licensed and trusted financial planner. Unfortunately, we cannot guarantee the accuracy of the information in this podcast, including any financial, taxation, and/or legal information. Remember, past performance is not a reliable indicator of future performance. The Rask Group is NOT a qualified tax accountant, financial (tax) adviser, or financial adviser. Access The Rask Group's Financial Services Guide (FSG): https://www.rask.com.au/fsg

Transcript

SPEAKER_01 0:00

The Talk Investing Podcast and blog discusses investment advice from our previous podcasts and radio shows by Remo Greco and Marco Melado. Learn all things around retirement and investing.

SPEAKER_02 0:18

On the ABC Listen app, your smart speaker.

SPEAKER_00 0:21

And on your radio.

SPEAKER_02 0:23

This is ABC Radio Melbourne and Victoria.

SPEAKER_00 0:26

With Lisa Leon. On the money.

SPEAKER_03 0:37

Share market specialist Remo Greco joins you to share what's hot and what's not in investment markets and what it means for your hip pockets. Anything we share here is general in nature. Doesn't take into account your personal circumstances, financial situations, or needs. Hello, Remo.

SPEAKER_00 0:53

Good morning, Lisa.

SPEAKER_03 0:54

So in terms of the trends of what is happening at the moment, so the U.S. markets are not very dependable at the moment. So people may be choosing to do other things. So what um what has been happening with well, I've mentioned the big funds and where they're moving their allocations.

SPEAKER_00 1:13

So Brand America has had a bit of a hit over the last three or four months, and it's showing up now in investment decisions. Investment decisions take a long time to roll out in the big end of town because they have committees upon committees and they could they go to the board and say it's a good idea that we do X, Y, and Z. What we're seeing, I suppose, in domestic institutions, that is, the industry funds that most of us have our superannuation with, they have been de facto winners in all of this in a way. You may remember we did a bit of a show some time ago where we tried to explain why the banks in Australia, the share prices, have done so well, particularly Combank. They're up 30 percent in about 18 months. People were scratching their heads, and what was going on there were the big end of town, the big industry funds were being scrutinized to see if the returns that they had promised would in fact come through. And the only way for them to do that was to become very close to the index benchmark. So the portfolios that they run for you and I had to reflect roughly what the indexes were. Institutions had taken a bit of a pessimistic view of our bank stocks over the years and had less bank stocks than what the index showed. And so over the last couple of years they said, hey, if we keep doing this, we may not fulfill our obligation to meet the returns, and the scrutiny by the big i by government was starting to get get on their nerves. So they ended up closing the gap between what they owned in banks and what they should own. Now, that's just been an absolute gift for them because their exposure to Australian shares that they invest for us has gone from twenty-six percent of the fund, of a normal fund, industry super fund, to twenty-nine percent over the last few years. And guess what's happened the last few months? Australia actually is one of the few countries that have been singled out as being almost unaffected by tariffs and what's going on in the White House. Who would have guessed that, number one? The other country that's been labelled as the one that that is uh also less affected or buoyant is India. So India and Australia are being singled out as in the top 30 countries are the ones where you don't have to worry a bit. So what happens? If I'm a global investor, I go, hmm, maybe I shouldn't have so much exposure to the US because I'm just not sure what's going to happen. The currency is really weak. I have my investments in the US and it's in US dollars, and the US dollar is going down. Oh, I don't like that idea, and the share market is going down. Oh, I don't like that idea, and also interest rates are going up, and I don't like that idea. So there's been like a trifecta of things that a global investor would say, Ridio, we need to think about how we invest funds for our investors, our clients, our superannuance, and and that drifting now has happened. We'll sell a bit of U.S. and we'll buy something else. What are they buying? Europe. Europe has been so cheap for so long, it's been a basket case of an investment area. They're not buying China, by the way, they're buying Europe. Uh so in Europe they go, hey, the Europeans seem to be dealing okay, they're stimulating their economy, so maybe we could buy some really, really good companies in in Europe. They're quite cheap, so I might not get a a haircut if things go wrong. And so we're seeing this drift of money away from the U.S. into Europe. What does it mean for Australian investors? Well, our funds have already moved a little bit more money into Australia. The Australian share market is pretty much unaffected by what's going on. We're down about six or seven percent from our high on the 14th of February. Um overseas markets like the U.S. Now are down a lot more than that. So for Australian investors, we've sort of missed a bit of a a pothole here. What about self-managed superfunds? Because they're, you know, they're big investors in our country as well. The data shows that most people that have self-managed superfunds tend to have a home bias. So they already have a lot of Australian shares, and only in the last five or ten years have they slowly ventured into buying U.S. tech stocks or other things. But generally, self-managed superfunds have stayed pretty close to home. Yeah, they probably missed out on a bit of the strong gains of owning Amazon or owning Microsoft and those sort of things, but they're pretty comfortable managing their investments domestically. So, gee, we're the lucky country here. Things are sort of reasonably good. Let's put some numbers to this. The world index, uh, this calendar year i is is up around 4 percent, and the U.S. market is down 16 percent. So that's a 20 percent gap. We haven't seen that in two decades. So if I'm a portfolio manager, I have just been handled my head on a plate, and so I need to do something about that.

SPEAKER_03 5:58

And um if we don't have exposure to non-U.S., but we don't want to put all our eggs in the Australian basket, um, even though we are only giving general general uh well, not even advice here, um, what are some steps we could take, or what's some research we could do if we wanted to up our exposure to European?

SPEAKER_00 6:22

Okay. So most people would say, let me buy like an exchange traded fund that that gives me uh the world and it excludes the United States. So there's a couple of big, big exchange traded funds that you can buy on our market, on the Australian Stock Exchange, VEU and VTS. VTS is the total U.S. market. And then there's VEU that says everything in the world except the U.S. market. And so for uh sort of gutless investors like us, what we do in our portfolios is we buy a bit of both and we watch them move up and down. And over the last ten years, the VTS, the U.S. has done really, really well, and the VEU has been like a bit boring. But in the last year or so, hallelujah, brothers, it's turned around the other way. So that's pretty good. That's called diversification, Lisa. You sort of put you spread your bets a little bit. Sometimes they don't always work, but hopefully overall, the the ones that work do reasonably well. So that's one way of doing it. The other way is go and search for some investors, some funds out there that are specific to non-U.S. We use a product, this is not a recommendation, it's a general view here. We use a fund that's listed on the ASX called PM Capital Global. And that fund manager has had a negative view of the U.S. market for quite a few years and thought that Europe was really, really cheap. And so he tilted his portfolio towards European unloved stocks. Now, the unloved stocks that's interesting, unloved stocks. Yeah, because a lot of people just said Europe is not a destination I want to be in. And in a way, it's hard to combat the glitz glamour and sexiness of owning a U.S. technology stock that's front page every day. Investors just get drawn to those sort of things that are exciting. If you want excitement, you go to the carnival or a circus. We don't think that's the way to go. Look for boring things. So he tilted the portfolio and he still did very well. The last three years the returns are 20 percent per annum for three years straight. Sensational. Wow. It's the number one fund in Australia for the last 10 or 15 years. He's really done very well by searching for things that most people don't. So that's one way to do it. You can also buy an ETF on the Australian Stock Exchange, which is a European ETF. It's just got European stocks. LVMH, uh Siemens, um SAP Software. These are names that some people might be able to do. Yeah, they're like blue chip, sort of. And they're about 30 percent cheaper than what you pay for the same businesses in the U.S. Trevor Burrus, Jr.

SPEAKER_03 8:44

Kylie from uh Dalesford. Dalesdale? Um how high can Combank shares rise?

SPEAKER_00 8:51

Yeah, so they're really just um reflecting the current flow of capital that's coming into Australia. If you we've often said this, the way you understand this is look at what the Australian dollar is doing. The Australian dollar has actually gone back up in the last three or four weeks. That's because money is coming into this country. If it comes in, they'll buy a couple of things. They'll buy Australian property, i.e., commercial property, where we're seeing foreign capital starting to come in and buy buildings, big buildings in our capital cities, and we're seeing them buy shares. If they're going to buy shares, they're gonna buy the top ten. The biggest one is CBA, then there's BHP and Westpac and A and Z. But CBA tends to get quite a bit of that flow, we call it flow of capital coming in. And the problem with CBA is that half of the stock is owned by mums and dads who will never sell it. So there's a shortage of CBA liquidity in the market. There's not not that many shares that travel around. So when a bit of money comes in, there's an outsized event. It just looks a bit stronger than it should be. So how high can it go? I don't know. I don't know how long is a piece of string, but it's it's the sort of thing that if we think the trend is that Australia is going to be looked at reasonably favorably by global investors, see Combach could continue to do really, really well.

SPEAKER_03 10:08

Uh this one from Anne. I have a few dollars to invest in shares. Should I buy some of the consolidated groups on Comsec Pocket?

SPEAKER_00 10:16

Yeah, so I if I remember correctly how ComSec Pocket is has has uh buckets of investments, and in those buckets are things like if you want to be aggressive, then it has a lot of growth stocks in it. If you want to be conservative, it might have more fixed interest. That's a really good cheap way of starting your investment uh process or journey. I hate that word journey, but that's a really good way to do it. And the markets are down a bit, they're a bit soft. So it's interesting that, yeah, when things are a bit crooked, buy a little bit, maybe set up a bit of a program that says I'll buy a little bit this month, buy a little bit in a couple of months' time, and a little bit in a couple of months after that, so you can edge into the market over time. Sort of stick to that if you can. It could pay off reasonably well for you.

SPEAKER_03 11:00

Uh will the U.S. market bounce back?

SPEAKER_00 11:02

Yeah, so that's really the question now, isn't it? Is there been uh a body hit to the U.S. brand from overseas? Now, we just don't know that. What we're dealing with is a whole lot of stuff coming from the White House, a lot of things where at the moment we know that surveys of people intention to spend, surveys of businesses intention to spend, all of those surveys look really, really bad, but the actual numbers in the U.S. are reasonably good. Why? We haven't seen the impact of these tariffs uh to come through in the real economy yet. All we have got is, or I feel bad about it, and financial markets are reflecting a bit of that. Has the brand uh been hit? Look, it's possible that it's it's suffering now and will take quite a while to recover, but markets are pretty efficient at working this out. One area would be if the price of gold keeps going up, that's a signal that people are moving away from U.S. investments to other things, other things being European shares or European property or Asian investments as well, but also things like gold, which has done really, really well for the last 18 months. But then who's joined the party in the last couple of weeks? Bitcoin's joined the party. So we're seeing this flow away from the U.S. And I suppose while we see continued uncertainty in policy, then that's likely to remain. So uh and the U.S. markets are expensive, they're not that cheap. So you are running, you're really swimming against the trend a little bit here.

SPEAKER_03 12:39

Now, this um Texa has asked, how do you do that through your super fund? Let's say I did want to change my allocation.

SPEAKER_00 12:49

So you log on to your fund, so you've got to find your password. That's pretty hard. A lot of people sort of forget that. Log on and see what your current uh allocation is, whether you're in the conservative group, you do the fault option, which is the balanced, or you're in the aggressive or performance-high performance group. And then look at how you can change from if you're in conservative and you go, right, I've been a bit of a chicken over the last couple of years, but now's my opportunity to chase the markets a bit, then you might move from conservative to balanced, and that gives you more exposure to things like shares and property. And if the markets go down, you might kick yourself and say, well, that was a stupid idea. But if you're a longer-term investor, you've got maybe five or ten years ahead of you at least, and you've been a bit more con if you've been a bit too conservative, and now you think it's time to dial up the performance, it's a good time to start looking at that slowly.

SPEAKER_03 13:43

Thank you so much, Remo.

SPEAKER_00 13:45

Pleasure.

SPEAKER_03 13:46

Uh that's it's so interesting what the markets are doing here.

SPEAKER_00 13:48

Yeah, the trends are changing dramatically, so it's uh it's difficult. But anyway, great to talk to you, Lisa.

SPEAKER_03 13:54

Thank you so much. Remo Greco there for On the Money.