Our Director of Trading, Trent Primmer, was live on Ausbiz today discussing the inflationary and geopolitical influences on the current bear market and what investors should look to buy to mitigate portfolio volatility.

What to buy when bad news breaks

Trent observes investing in different sectors as the impact of China's COVID recovery has a domino effect on the world economy.

Beijing is worried about increasing unemployment, however, foreign businesses are counting on China to resume its pre-pandemic levels of engagement.

Watch the full video here!

Nadine Blayney: 

“That's a bit of a warmup for our conversation to come with Trent Primmer. He's joining us from Barclay Pierce Capital. Trent, always good to see you. Thank you for coming in.”

Trent Primmer: 

“Thank you. Thank you for having me.”

Nadine Blayney: 

“What do you guys make of all of the, you know, big outsized moves in markets this week?”

Trent Primmer: 

“Yeah, it's interesting. I mean, I think this market will be, obviously we're in a bear market. I think it'll be an interesting case study for future markets. Obviously there's a lot of uncertainty right now you've got high inflation, geopolitical tensions bearing on the market, fears of recessions. You've got China's lockdowns, issues with port capacity out of China. I think just recently, the head of Toll Logistics; their logistics division said that the Shanghai Port Congestions will probably continue into 2023. That's causing obviously *inaudible* next. It's a little bit of a concern for commodities in particular, and there's obviously shortages of products coming out of China and not much going in and out of China at the moment.

So a lot of things weigh in on the market. Our view is that it'll stay relatively stable and trade sideways for the next six weeks, and then you'll see further sell-offs, and I think it's just good to position your portfolio defensively.”

Nadine Blayney: 

“On that Trent, what is forming the basis of that opinion that will trade sideways for the next six weeks or so?”

Trent Primmer: 

“I think, well, you're seeing a lot of the liquidities dry up in the small cap sector. You're still seeing big volumes in the larger cap space. There's still opportunities I think people haven't caught on that, you know, they haven't really come off the view that we're in a solid bear market. A lot of people buying those dips and, you know, being quite confident with where they're buying at. I don't think they're looking at a good long term view. What we see is markets will probably still trade off that positive sentiment, leading into end of financial year. And then the catalyst will be tax loss selling. And there's probably gonna be a lot of losses for people to start realising and selling out of their portfolio. I think that'll be the catalyst.” 

David Strutt: 

“Yeah. So Trent before we get to the buying opportunities, when we get this expected pullback coming through, what are some of the areas right now in this six week window we've got that you'd be looking to go and trim some positionings. What would you be trimming?”

Trent Primmer:

“Industrials and banks, consumer discretionary. I think just positioning yourself out of some of those heavily weighted sectors on the ASX is probably worthwhile because if you get really massive falls, obviously the heavier weighting. Sectors like banks, industrials, they'll sell off quite a bit. Where we'd position ourselves aside from that would be still in commodities, but not overexposed.”

Companies that offer you yield so that while you're holding these businesses in your portfolio, like your BHPs, your *inaudible*, you're getting some good value, some good yield there for your portfolio. You're getting paid to hold these positions basically. And aside from that, looking in the energy sector and obviously resources as a whole, but some of the rare earth companies, *inaudible* resources is one in the rare earth space. And copper and cobalt, nickel, panoramic resources come to mind as well. And in terms of energy space, Woodside, Beach Petroleum, that's what we've been buying and we've done quite well off them. We're comfortable we're holding about 40% cash still. And we've held some good gold positions in northern *inaudible*, which haven't done much.  But if you saw the selloffs in cryptos recently, a lot of people were looking at crypto as a hedge against corrections and market selloffs. We're seeing that that's not true. you know they trade like a crypto proxy to the Nasdaq more so than a hedge against, say, an inflation or a down market.

Nadine Blayney: 

“Can you flush out your position about gold right now? Because, you know, there's a lot of, sort of unknowns as to why the Australian gold miners have not performed better. 

Trent Primmer: 

“A big proponent, I think, is the focus in the rare earth space and people selling out of those typically. I mean, a lot of Aussies were probably holding some good gold positions

You weren't getting any returns there when inflation was running rampant and it still is. Normally with that, coupled with geopolitical tensions, a market running hot, which is due for a correction, you'd see gold trading in line with that rather than selling off. So it's got an inverse correlation at the moment, which is strange.

If you're someone that's holding those positions, what would you rather- returns that you're seeing, which are sustained in the rare earth space, or sticking with your gold and sticking to your guns, so to speak. I'd like to play both. I'd still like to have my gold positions in there as a hedge against my portfolio, but I still want to get some of those healthy returns that you were seeing in the rare earth sector.

David Strutt: 

“What about the technology space? It's been hit pretty hard. It has, well, other most at the moment. Some companies are great, some companies have gotta be a question mark over still. What do you see in that area of the market that looks appealing at this stage?

Trent Primmer:

“Look, if you've held heavy tech, you've got tears in your eyes at the moment. Everything's getting hammered, which is understandable. But I suppose the question on everyone's mind is, where does it stop? If you're a short term trader, you'd have to be pretty ballsy to go in at these levels and start value picking and picking bottom bottoms in some of these companies, you saw zero selling off what, 18- 20% the other day of weaker guidance. A lot of these companies are reaffirming weaker guidance and they're moving into earnings downgrade, grade cycles. But, in terms of value, yeah, there's a couple LTM happen to some extent. Zero for sure. Those domestic names I'd be looking at, but you've gotta be prepared to hold these names for probably 12 months or more. I'd be concerned if you're buying these things for a quick turnaround or you know, you're trying to make a quick quid here or two, you can get caught out doing that.”

Nadine Blayney: 

“Yeah. It doesn't sound like you're rushing to get into any of those names.”

Trent Primmer: 

"Not at all. No. No. We'll stick with what I know. And that's long term investing, being comfortable having some good exposure across sectors that are moving, but not having too much concentration on particular names.

You know, you want a well-balanced portfolio. Still some diversification, but hold some cash, keep your powder dry for some of those value opportunities, whether that's coming in the tech sector or other sectors. You know, we've just gotta see how the broader market plays out and deal the cards with what we're dealt. So yeah.”

David Strutt: 

“40% cash you mentioned that's a lot compared to a lot of people we speak on the program. How does that sort of rate compare to what you'd normally be holding on the books?”

Trent Primmer: 

“Normally we'd probably be holding around 10 to 20% maximum. I think this market's got us a little nervier here. The rally that we've seen in this market has just been phenomenal. But then the negative sentiment and a lot of the issues that we are dealing with as investors right now, historically haven't been seen. It's a melting pot of bad news out there in the inflation rate that you're seeing come through has been, you know, decades, highs.

These are worrying for the market where it's due for a correction. I don't think there's a tried or true amount of cash you should hold. People are worried that if they're holding too much cash and they're not getting a return on it. But I say if I'm holding that cash, I'm not losing, you know, 20, 30% that I could lose in the market when it corrects, officially corrects. Because we haven't seen a, we haven't seen massive falls yet. I think that's due to come.”

This interview was arranged by Hans Lee, producer and journalist at ausbiz.

Barclay Pearce Capital team members are often featured by the media, sharing their insights on the market. Receive the latest market summaries and market-moving news, subscribe to Deal of the Week