By Anthony Macdonald
One of Australia’s most active equities investors talks us through his experience of a frantic few days in markets.
It’s spectacular how much a few of US President Donald Trump’s comments and a good night’s sleep can calm the place down.
Oil has come back a bit, the S&P/ASX 200 is up almost 1.5 per cent, nine out of 11 sectors are in the green and the worst of the war in the Middle East appears to be over.
To sum up the mood in Australian equities on Tuesday, we’ll defer to Wilson Asset Management’s WAM Leaders portfolio manager Matthew Haupt, who has a $1.8 billion fund of ASX-listed large caps that is one of the busiest traders in Australian institutional equities.
“Our base case is largely the worst is over,” Haupt told his investors in a call on Tuesday.
“We still think there’ll be flare-ups over the next year … but our base case isn’t for prolonged problems.”
Haupt was talking about the oil price – this week’s doom topic du jour, having temporarily knocked private credit cockroaches and artificial intelligence coming for white-collar jobs off the front pages.
Haupt’s been watching his screens from Sydney, 13,000 kilometres from Tehran, where bombs are still flying, having to decide what to do with his clients/investors’ money.
For the past week, it’s been an oil up/equities down story. “We had a saying internally it was oil driving the bus and everyone else was following as a passenger,” he says.
The bus was in reverse on Tuesday and everyone seems to feel a bit better about the world. What panic?
Of course, the settler was a few lines from Trump about the military operation being over “soon, very soon”, potentially signalling the Strait of Hormuz would be wide open again and oil could start flowing from the Middle East into the rest of the world. The market lapped it up.
Haupt immediately felt a bit calmer, but his mood – and his trading – can quickly shift back.
“We now really need to see action,” he tells Chanticleer.
He was heading afternoon trade, watching the news wires and making it clear we’re now back in those markets like “liberation day” last year, where trading sessions are split in half: one in the morning based on what Trump said/did overnight; and the other in the afternoon based on US futures, which can whip around.
Haupt’s core fund, WAM Leaders, is happy to trade both sessions (it turns over six to seven times its portfolio value every year, which is a lot).
We’d argue Haupt’s words about “the worst is over” was a consensus view on Tuesday, based on conversations with fund managers and notes from equities strategists and investors offshore. The reality is no one can know for sure.
Morgan Stanley’s chief US equity strategist and chief investment officer, Mike Wilson, whose “run it hot” playbook has been sidetracked a bit by war in the Middle East, reckons the equities market correction is closer to the end than the start.
His colleague over at Morgan Stanley Wealth Management, chief investment officer Lisa Shalett, whose team invests clients’ money, cautions that war-induced oil shocks have not been kind to equities in the past, but reckons this time is different.
“First, the world entered this conflict with excess oil supply, leading to ‘only’ about a 40 per cent Brent crude price gain thus far,” Shalett told clients overnight.
“Another difference is that events are occurring amid a capex boom and potential manufacturing rebound. These tailwinds, and anticipated stimulus, have kept stocks firmly bid, despite intense subsurface rotations.”
These investors, like Haupt, keep coming back to underlying earnings and financial market conditions.
“We’ve had a lot of disruptions, but the markets fundamentally haven’t broken yet,” Haupt says of a hectic start to the year, which began with Trump talking about taking Greenland and cycled through geopolitical, AI and private credit risks.
“It goes back to the impeccable financial plumbing in the system, the liquidity,” he says.
“The yen carry trade broke-unwound and everything was OK, ‘liberation day’ caused a storm but everything was OK, and Iran is similar.
“What we look at, the financial market plumbing, has been remarkably resilient.
“It has digested a lot of the risks that we’re seeing and that’s why we remain fairly constructive on equities.”
The plumbing Haupt is talking about is the repo market, which is where banks, hedge funds, money market funds and the central bank deal in dollars and securities to meet their respective liquidity requirements.
The system relies on trust – trust that a hedge fund or bank can get quick cash to fund daily requirements and money market funds’ trust that they will be repaid.
“Liquidity is huge in the system and hasn’t been broken,” he says.
Liquidity’s not great enough to break Australia’s capital markets drought – we haven’t spotted a $100 million-plus bond deal for the past 10 days despite a handful of big issuers sitting in the pipeline, which is quite a dry spell. Equity capital markets activity is also almost non-existent.
Licensed by Copyright Agency. You must not copy this work without permission.
