Time To Rotate
Tony Nash joins BFM 89.9 The Business Station for another look at the global markets particularly discussing the “Japanese equity market”. Is it the time to rotate into value or maybe it is a sign that the broader economy is recovering?
This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/time-to-rotate on August 26, 2020.
With technology stocks hitting all time highs, there has been some inflow into the finance and utilities sectors. We ask Tony Nash, CEO of Complete Intelligence if it is time to rotate into these names. We also ask his views on the Japanese equity market and if there is still money to be made with the change in leadership.
Produced by: Mike Gong
Presented by: Khoo Hsu Chuang, Wong Shou Ning
WSN: So far, deeper dive in global markets today. Joining us is Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Now, last night, U.S. tech stocks will slump relatively while laggards like finance and utilities saw some inflows. So do you think this is the time to rotate into value and maybe a sign that the broader economy is recovering?
TN: I think it’s certainly a time to to that that that rotation is starting. I don’t necessarily think it’s in full swing yet, but but we’ve received signals for the past week or so that that rotation would start sort of seeing some of the techs off.
Today is not really all that surprising, given especially some of the Fed and Treasury statements over the past couple of weeks.
KHC: Yeah. So in terms of cyclical stocks, Tony, what is your point of view in terms of which sectors might benefit?
TN: Well, I think, you know, we’ve seen tech with companies like Nvidia, Tesla, and these guys have just had amazing gains over the past, say, four months. I think, you know, the rotation into some of the finance stocks, into some other more mainstream, broader market equities is likely. I think the indices are assuming that tech stays at elevated values. That rotation will only help the indices if tech comes off. Given the concentration of waiting within those stocks, it could really hurt some of the overall indices.
WSN: And, Tony, let’s focus on one of these, you know, super winners in the last few months. And it’s Tesla, right? They have a decision to sell five billion worth of shares. Is that smart or overly ambitious? Move now. And what more what kind of growth can we expect from this company?
TN: Well, the I think the the growth in the stock price is very different from the growth of the company, so Tesla’s trading at a PE ratio of almost 1200.
OK, the stock’s more than doubled since March. So, you know, the company itself isn’t doubling. You know, I think it has. I think what the management is doing is making a very smart decision to sell equity while they know the price is very high. So from a management perspective, I think that was a very smart decision. In terms of a buyers perspective, I’m not so sure it’s possible that Tesla stays at these elevated level. People have been trying to short Tesla for years and it just hasn’t worked.
So it’s possible there’s growth there and it’s possible they stay at these elevated levels.
WSN: So, Tony, are you a big fan of Tesla? This level…
TN: It’s hard not to be whether I’m a buyer, personally or not, I would hesitate here. But, gosh, you know, I think there are other places to look that are better value.
But it really, you know, part of it really all depends where the stimulus is going. So since the Treasury and Fed are intervening in markets, if they’re targeting specific equities or specific sectors, then you kind of have to follow that money.
And so it’s it all depends on how much further these things are going to run and where that stimulus is targeted.
KHC: OK, based on PMI data, most of Asia remains contractionary. But for China, of course. You know, Tony, in your opinion, why is recovery not yet forthcoming? And is there a main catalyst needed for manufacturing to take off?
TN: Yeah, I mean, look, in terms of manufacturing PMI, as you have Indonesia, Thailand, South Korea, Taiwan, you know, they’re all growing, which is great. Myanmar is actually growing faster than China.
But what we don’t have really is the demand pull. And that’s been a real problem. And, you know, we’ve been talking about that since February and we’ve been really worried about deflation. And, you know, what we see even in Southeast Asia is government intervention in markets is really what, propping up a lot of the activity. And I think, you know, the big question I have is, will we see steam come out of recovery in Asia in the same way we’ve started to see steam come out of recovery in the U.S.?
I think the answer is unfortunately, probably yes. And I think until the demand from both consumers and companies comes back and the fear of covid wanes, I think we’ve got some some volatility ahead.
We’re expecting some real trouble in September. I think it’s great that markets are doing well today, but we’re starting to see the the momentum really slow this month.
And without additional help from the Fed or PEOC or other folks, it really slows down. The problem is the efficacy of that support really deteriorates the more you add to the system.
WSN: And Tony, look at Japan, right?
I mean, are trading the equities. They are trading at a steep discount to their historical premiums. Do you see any value in yen based assets? After all, Warren Buffett himself just dipped his toes into it by six billion dollars worth of trading companies did. What do you think?
TN: Well, that’s the answer. I mean, it’s hard to it’s hard to bet against Buffett. He’s obviously seeing real value there. And I think the Japanese trading companies are really, really interesting because they’re you know, they’re a very good play right now. So is there a value? Sure. I think there’s value there. I think with Japan, a lot of the story is around productivity and automation. If if Japan can continue to raise its productivity through automation, I think it will be a very good play.
If that productivity and if the level of automation slows down, then it becomes questionable because everyone knows about the demographic story in Japan, but the economy continues to grow, which is really amazing.
WSN: So it seems like you’re quite a believer in that this can overcome some of the structural issues. But what about the fact that Abe has resigned for health reasons? Does it change at all the economic and monetary policies in Japan that might change your decision?
TN: Yeah, I think when someone like Abe steps down, there’s always momentum. So it last for several months. The real question is, how long should the next leadership last? And is there enough structural stability to continue the momentum in Japan, meaning it’s not growing leaps and bounds, but it’s stable growth and it’s healthy growth. So I like Japan a lot. We have had reform under Abe. We have had structural reform under Abe. I think it’s much more healthy today than it was in 2011 or 2010. A lot’s been done.
Japan has the capability to continue to improve, but it all really depends. There are regional dynamics and there are domestic dynamics. But again, I think if demand regionally and globally doesn’t return, which is likely COVID induced, then I think Japan, like everywhere else, will have issues.
WSN: All right. Thank you for your time. That was Tony Nash of Complete Intelligence, speaking to us from Houston, Texas.