Trent Primmer, our Director of Trading, was live on ausbiz today discussing macroeconomic themes that are driving the market.
From "Obviously" buying the dip to building defence
The current pressing issue is inflation, and it is a difficult beast to read.
“Trent has always held the view that inflation isn’t transitory, and it now appears central banks will look to take action earlier than they anticipated but still too slowly to provide a soft landing to financial markets due to the extreme stimulus that has flooded the market over the past two years.”
Trent also discusses BPC’s clients in the renewable energy and copper space:
Renewable Energy Companies:
Verdant Earth Technologies
Founded in 2018, Verdant Earth Technologies is working to achieve net-zero emissions through the development of green hydrogen and renewable energy assets. Why? Because it’s impossible to achieve net-zero emissions by 2050 if we continue to use our resources the way we do today.
Infinite Blue Energy
Infinite Blue Energy's mission and goals are to be a pioneer of green hydrogen developments in the region, leveraging our domain expertise in developing renewable hydrogen projects that facilitate the transitioning of the Australian economy towards net-zero emissions.
Copper Company:
Locksley Resources Limited (ASX:LKY)
Locksley Resources Limited is an Australian exploration company incorporated in October 2018 for the purposes of identifying and assessing resource opportunities within Australia.
The Company is focused on the acquisition, exploration and development of mineral resources projects which have the potential to deliver significant growth for Shareholders.
Read the conversation:
David Scutt:
"Well, let's go and get his take on that report and everything else that's going on in markets. And there's a lot of parts of December Trent from Barclay Pearce Capital, joining us now on the program. Trent, it's great again to see you there, all roads back to that inflation report in the states tonight."
Trent Primmer:
"Yeah, absolutely.
I mean, look, there's two major macroeconomic themes at the moment, which is driving the market. Like you said, inflation is probably the biggest one, second to that is omicron. We're kind of touching briefly on Omicron. We're actually of the view that there's nothing really to worry about there. We obviously bought the dip, which is proven to be sort of a favourable move at the moment with equity markets sort of bouncing nicely as it starts to subside.
The more pressing issue like you said is obviously the inflation number and it'll be interesting. It's a difficult beast to read at the moment. We've always held the view that inflation isn't transitory. And it appears that obviously central banks are coming to the party on this thesis and they'll obviously look to take action earlier than they anticipated."
Nadine Blayney:
"Okay. So you bought the dip. We did see a bounce this week, although it looks as if we will end on a bit of a fizzle yesterday and today. So what do you think going forward sort of to the end of the year with all the risks that we listed off the top with Omicron, with inflation, with China, you know, we could go on, are you positioning a little bit more defensively going forward?"
Trent Primmer:
"100%, and that's the key. It all depends on how you position in your portfolio. If you're still looking for that high growth or you have exposure in the tech sector, or you have exposure to say, consumer discretionary, obviously that spells out bad news. Inflation affects all of those sectors significantly.
We're positioning ourselves more defensively at the moment, as a result of the aforementioned, macroeconomic environment. We're mainly favouring inflation hedging assets, you know real assets, such as commodities, where businesses can start to pass on those higher pricing, infrastructure and obviously as we've discussed in the past, you know, with you guys, we're really big on renewable energy and I think that still has a very, very long way to play out. I think positioning your portfolio to obviously commodities, infrastructure, renewable energy is probably the way to go next year and potentially, you know, consumer staples. Businesses like Woolies, Coles you know obviously catering to consumers' needs and not necessarily wants like the consumer discretionary business."
Nadine Blayney:
"Interesting. Okay. When you talk about gaining exposure to renewables, through what vehicles, I mean, are we talking listed equities here in Australia? If so, what? Or do you look for private opportunities? Do you look for ETFs because it's such a wide remit right now, you know, you can use the battery you go for more traditional, what you think of as renewable energy, like solar and wind."
Trent Primmer:
"Of course, that's a really good question and obviously, we have a, quite a breadth of opportunities, both in the unlisted and private space, as well as, on market. Namely you know, some of the hydrogen ETFS, one of them, which is the beta shares, hydrogen ETF which is HGEN, definitely worthwhile looking at for a longer-term hold. Pure Hydrogen, which is another hydrogen player, which is listed. Looking at copper businesses like Locksley Resources, which just released some fantastic results, which the market hasn't caught hold of yet, they will.
Some more news to come on that front. Lithium, anything that has exposure to electric vehicles or the EV battery thermatic. We expect to do quite well as you know economies around the world are starting to transition away from traditional fossil fuel sources. That's going to take some time, but all the more reason to invest early and hold these good businesses you're getting in at lower pricing.
You know, obviously if you're a big believer in renewable energy and shift away from traditional fuels, longer-term it's worthwhile looking at these businesses. Namely in the private sector as well, there’s quite a few green hydrogen players coming up one of which we've listed. We’re about to list on the NASDAQ, which is Verdant Earth Technologies and another coming through, which is Infinite Blue Energy.
So we have quite a bit of exposure here at Barclay Pearce in that sector as you would have guessed."
David Scutt:
"Hey Trent, in that resources space, there are the commodity space in particular. What are some of the bargains that you're seeing at the moment? How do you see gold? How do you see some of those other players? Where are the bargains right now?"
Trent Primmer:
"Gold, for sure. It's a bit difficult. This market's going to provide a really good case study for future investors. You know, you're in a low interest rate environment. People have hot money, they don't want to park it in banks, but also if you're looking at growth, I mean, a lot of things have run very, very hot.
Particularly, like we say, we're pretty confident on commodities moving forward and the continuation of the commodity supercycle. I think looking at some of the well-diversified businesses, you know, BHP, RIOs, I think probably for value at the moment we’d look on the smallcap end, something like Locksley Resources, PH2 which is in the hydrogen space.
Definitely gold, Evolution Mining, Northern Star are my favourite stocks in that area and I think the market hasn't caught on, it's weird. It's not a typical correlation to how it should really play out in a high inflation environment. So I think getting in now you're getting into better pricing. Eventually I think when things start to turn and interest rates rising and things start to be a little more real in the market, people are going to start buying up these businesses and they're going to be allocating not small amounts, you know, 15, 20% positions to their portfolio and some of these sectors. So, I'd for sure look at those areas moving forward."
Nadine Blayney:
"Okay. So I think copper is an interesting one as well. Just to rewind. Do you say Locksley Resources is one of your favourite picks in the space?"
Trent Primmer:
"Locksley Resources, LKY is the ticker code. Yeah."
Nadine Blayney:
"Thank you. Yeah, I just wanted to clarify that."
David Scutt:
"Trent, I was going to go ask as well, banks. We’re talking about inflation, we’re talking about rising interest rates that typically goes and lends no support to the banking system. How do you see that area at the moment?"
Trent Primmer:
"You can play it two ways. Obviously net interest margin start to increase as interest rates rise. We’d expect interest rates to start to rise probably by second half of next year. If you push me on a date, I'd say August after the inflation numbers from July come in for quarter two inflation figures because obviously we read through quarterly on inflation in Australia, as opposed to monthly in the US. Banks, it's a little difficult, but my view is that one of the big pressures for next year is probably going to be the housing market. Is there going to be an increase in doubtful debts because people have borrowed so much and overextended in the low-interest-rate environment?
Are they going to be able to service those debts in a high-interest rate environment or an interest rate environment that’s starting to obviously to increase? So, A little wary on banks, we typically haven't really bought them since the royal commission really we've looked in other areas and we've done quite well.
And as the old saying goes, if it's not broken, don't fix it. But I think you could play it both sides. They could do particularly well. Generally, they're the lifeblood of an economy so as interest rates rise, the economy starts to strengthen, banks should do well. But like you said, there’s a melting pot of potentially negative news and it comes down to market sentiment.
It comes down to how investors read that news more so than anything. So, I think we just want to stick to what we know. We want to look at, defensive portfolios and not really aimed to knock the lights out. We want consistent growth and we want to protect, investors' portfolios, and obviously their nest eggs, particularly in a time like this, where the market's run very, very hard for quite some time in a fairly iffy market."
Nadine Blayney:
"Woolworths and Coles, earlier on, what's your view on Metcash? We had a pretty strong update coming from the company just recently and the share price has done very well off the back of it."
Trent Primmer:
"It's not one that we've followed, to be honest. Like I said, we want to stick to what we know, but, obviously, Metcash, is not one that we've looked at, unfortunately, I'm sorry."
David Scutt:
"Trent, when it comes to 2022, what is the biggest risk out there at the moment? Are you concerned about inflation or the virus or is it going to be that how markets sustain a period when you see money start to go have a price attached to it?"
Trent Primmer:
"Yeah I think how investors look at the market once interest rates start to rise. That's going to be the biggest thing obviously, the property market is one issue as well. There can be some pressure there, with interest rates rising. Like I said low-interest-rate environment. We've seen a massive rush for people taking on debt. You've also got a lot of people changing jobs at the moment as well, which is some businesses still suffering because they're not even able to get staff, in a period which we're calling, obviously the great resignation. It doesn't correlate to how our market typically would with these events.
There's a lot of ifs in the market. And like you said prior to me jumping on is you've got geopolitical tensions thrown in there as well. So it could be a number of factors that end up, causing a correction in the market and I think it probably should happen next year but we wouldn't be expecting that until rates start to rise around the second half of next year."
David Scutt:
"Lift off for the RBA. Trent Primmer from Barclay Pearce Capital, thanks for joining us on the program and enjoy the weekend."
This interview was arranged by Hans Lee, producer and journalist at ausbiz.
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