Australian Share Market Outlook

I'd like to welcome our next speaker, Mr. Jim Beylieu, portfolio manager from Tribeca Investment Partners.

The Tribeca Alpha Plus fund is an Australian equity long-short strategy fund with a typical asset held in cash, cash equivalent instruments, Australian listed shares, other equity like securities and exchange traded derivatives.

The fund aims to achieve positive returns in assets of the benchmark by taking both long positions and short positions in selected Australian shares.

As the portfolio manager of the fund, Jim Baillieu has quadrupled the asset under management to $1.1 billion since taking over sole responsibility for managing the fund, making it one of the largest long-short equity funds in the Australian market.

Jinbei is a prolific contributor to Australia's financial services sector.

She writes a regular column for the AFR, making frequent appearances for key media outlets and as a speaker at industry events.

She is a TEDx speaker, has been appointed as the core fund manager for hearts and minds investments and volunteers for the Raiz Foundation board.

Jinbei is going to give us an Australian share market outlook today.

Welcome, Jinbae.

Thank you so much for having me.

And thank you, everyone, for attending this.

Look, you know, I'm very honored to be speaking about Australian market because, you know, Australian share market, in my view, is going through some important transition.

And, you know, and then there are a few thematic that I think that as investor, you should take advantage of, you know, over the next 12 months.

Now, I guess, you know, many of you, if you know me, that I'm a very passionate investor.

You know, share market is, you know, fantastic asset class for investors looking for good return, particularly for active investors like myself.

Australian share market has achieved a very good return in the last 12 months on the basis that, you know, now looking forward, we have

a more reasonable interest rate outlook.

As you know, last 12 months we have had quite an escalation in interest rates and the inflation looks somewhat more reasonable and if anything in the US market, inflation started falling.

So last 12 months we have had a good market.

In fact, we actually have been very positive in the last 12 months

believing the share market was way too bearish, thinking we're going to crash coming.

And it's not yet here.

Our market itself delivered over 14% return for the financial year 2023.

Now, looking forward next 12 months, we do think our share market is still very well positioned on a few reasons.

Well, first of all, our corporate earnings has proven to be incredibly resilient.

Yes, our economy is slowing down.

And in the next six months, we will see more downgrade.

We will see corporate margin continue to start to contract.

We'll see demand environments slowing down.

Consumer particularly is going to slow down their spending.

In a way, it is a good thing because we want the interest rate to sort of cap out at where it is.

If anything, perhaps one or another two increases, then sort of, you know, a significant jump in the next 12 months.

So, you know, corporate earnings is slowing down.

We've got, you know, on the 12 month horizon, we already have some of the early indication of improvement across, you know, in terms of immigration.

We have a lot of people coming into Australia

You know, it is the pent up demand that is coming through.

In immigration, students, tourists, they're all coming back in a big way.

Slow, but coming back in a big way.

If anything, in the next 12 months, or next two years, we're expected, immigration in Australia is expected to get to something like 700,000 people coming to Australia.

in the next two years and this compares to normally about 200,000 just before COVID.

So a huge influx of people and coming into our economy, they will look for a place to stay, they will need to spend, they will look for education and consumer services.

So that is quite a strong underpinning for the Australian market that is very unique for our markets.

In fact, I think there is the IMF prediction for Australian

Australia population growth placed at the highest in the next two decades compared to many, many other markets, even the emerging markets.

So that's very positive for Australia.

So we have a very strong tailwind of immigration.

We've got students coming in.

We have services that continue to do very well.

Also as Australia, we've got good leverage into reopening China,

clearly Chinese market has been incredibly tough and over the last few years because of their COVID related impact, the hard lockdown, the leverage consumer, not leverage consumer, the tough housing market has really impacted that economy.

Now so far this year, things are improving.

Government is giving a lot of stimulus and consumer finally can move around and find jobs and start consuming in services and travel.

Now, this is still

very very early stage of a China recovery but we are seeing good indication the last 16 better and then there are more and more government stimulus targeting towards those sectors and we do expect that to benefit Australia not just the mining sector but also services travel consumer many many other space so you know so that's a very positive for Australia so fundamentally Australian economy is actually holding up a lot better than expected there will be downgrade but that is really helped the market to

have more realistic expectations.

We always always say that you know for share market to move higher you need two things.

One is you need the valuation to certain valuation certainty and two you need the earning certainty.

Now valuation certainty we have received that in the last six months.

You know this is when the interest rate increases or you know massive interest rate increases was really impacting the

people's confidence in that valuation.

And now we would say the worst is past that.

So, you know, perhaps we still have another couple, but we're very close to the end of the interest rate increases.

So that has seen the valuation sort of stabilising.

Hence why you saw a bit of a rally across the tech companies.

So we got that certainty.

Now, earnings stability is the one that we're looking for in the next six months.

We think this upcoming reporting season corporates will downgrade earnings more.

There will be more downgrade for 2024.

And that is all going to be very, very healthy for the share market to be able to definitively move higher in the second half of this year.

So Australian market is looking very strong with those tailwinds help us to offset the consumer weaknesses.

You know, I know it's very easy to become bearish of the Australian economy because all these headlines you read about the consumer gearing, the fixed mortgage cliff and all that.

Now, you know, the good thing is that so far things are holding up OK. And, you know, and then in six months, I think I do think we will be bottoming and we'll be heading higher.

And what does that all mean for the share market?

Remember, share market always forward-looking.

I started this conversation by saying that I love share market because it creates that opportunity for you to generate double-digit return within 12 months, whereas other asset classes, it normally is very, very difficult unless you take on significant amount of risk.

For the share market, they want to look forward.

Investors always look forward 12 months.

So right now I would say we're at the tail end of really re-pricing some of the earnings downgrade.

So that means we're getting very close to the bottom of some of those very cheap sectors.

And we do expect them to do quite well in the next 12 months.

And this reporting season could be the catalyst.

an opportunity for investors to really position in some of those high quality cyclical sectors that's buying something that you always want to buy and much cheaper.

So don't be set back by share price volatility.

That's just part and parcel of generating quite a significant return in the following periods.

Perhaps confusing everyone, we're very positive the Australian market, we think it will do well.

There will be a bit of a volatility as we downgrade earnings in the next three to six months.

But we do think that by year end, we should look at pretty good return for the Australian market.

Now, I think, so this is kind of my overall outlook

If we are comparing the Australian market to the others, we do think in the next 12 months, there will be a bit of a change in terms of sector rotation.

So last six months or last 12 months, at least tail end of last 12 months, we started seeing quite a significant outperformance by the NASDAQ or our tech sector, for example.

Now, next six months or next 12 months, we're very likely to see that rotation

into some of the cheaper sector I talked to that the sector's earnings are likely to be downgraded because they are at the forefront of slowing economic activity and then their earnings are very likely to rebound in the second half of the year.

So then we do think that tech will continue to do well but I do think that some investors will start doing a bit of profit taking and heading into these other sectors that sort of be under pressure.

We continue to think the key theme of the China reopening is going to be an important return driver.

It's going to drive our commodities, as expected.

And also on the side, there are many companies that are leveraged to the China reopening.

A lower risk leverage actually in a way.

So sometimes for investors much cheaper to, much easier to invest in Australia that gain exposure to China than directly invest in China because the volatility is much higher and you've got to move up the risk spectrum.

So things like treasury wine, things like A2,

gives you really good exposure to the China reopening, China consumer and China tourism.

But without all that, the risks that come with investing in a very high risk geographical space.

So, in terms of market, we've seen plenty of opportunities.

Investors got to stay patient, find the opportunity and then they'll be afraid.

and then take advantage of the current market volatility, if you like.

And your opportunity is really in the next few months when consensus earnings or Alice earnings gets downgraded.

So, yeah, so that's kind of my outlook for the Australian markets.

Let me know if you have any questions.

Yeah, well, excuse me, thanks, Jingbei.

We do have a few questions for you.

You quadrupled the alpha plus fund to $1.1 billion.

So how did you take advantage of the market volatility that some people are scared of?

Yeah, absolutely.

Well, look, we just continue to find, without being influenced by the market sentiment, so without being fearful when the market is falling or without being greedy when the market is rising, we are able to find opportunities in every sector.

One of the philosophy I always believe in is that I want to find opportunity in every sector rather than just buying what's hot or selling what's not hot.

You know, I want to be able to be a little bit early, be a little bit contrarian to generate my return at the same time on the portfolio level.

manage it to a to a to a to a stable level so by saying that is that you know obviously it's a little bit easier for me because I do I have a long short I'm a long short fund so I can manage my risk by shorting companies in the similar sector so you know I can long the high quality and short the low quality

And then when the market falls net net, the high quality company will always have investor support compared to the lower quality company.

So that's how we play on every market cycle.

We don't have to wait because we don't run out of cash.

I don't have to sell the things I like to buy something.

I can show more of the things I don't like to you know jump in at any opportunity whenever they present and I don't need to worry about oh when is the next catalyst when is anyone else going to recognize the opportunity because I can't afford to wait.

I know the risk adjusted basis on the 12 month that I'm going to generate significant return with low risk I will you know take it any day so that's kind of what it is we're agile we you know run like a business okay so you see opportunity you jump at it and then you manage your whole you know make sure the portfolio is stable generate have enough defensive and and then you know respond to changing market dynamic we never get wedded towards any stock or anything

It's mainly because you know, we need to change when the information change and you need to you know Every time when there's new news flow and announcement we need to reassess our position at any point in time And a lot of time it actually creates opportunity whether to buy more or you know to else do other things So yeah, so that's the that's the thing

And you have a long-short fund, so how does the ability to short stock help in this current market impact?

Yeah, absolutely.

So, you know, the market is very directional, right?

So, last six months, everyone wants to buy tech, everyone wants to buy defensive, like Kohl's and Woolworth's, sort of defensive on Telstra.

And, but for us, you know, we hold some of those companies, but the ability to short is that I can, I don't run out of cash.

I can buy any company in the same sector and short something else in the same sector without increasing my risk level.

So for example, for a long-only manager, if you want to buy, you know, for example, a, you know, what's, what's not hot.

If you want to buy a resource company, for example,

Then you have to sell whether it's your take-off elsewhere or other things to buy a resource company.

It increases your risk company exposure.

And so if China data is reading a little bit weak, you know Your resource exposure is going to lower your return and at some point so that return will come through but you know Just increase the volatility of your portfolio and if that resource company keeps falling in terms of share price You can't keep buying more because your portfolios become very skewed so for me if I want to buy a resource company or for example at the moment I see the biggest opportunity is actually in the healthcare space and

I want to buy more healthcare, I can short another healthcare company.

Or in fact, I can short something else with very similar characteristic, whether it's growth, whether it's all of that.

Now healthcare company represent phenomenal opportunity in the Australian market because they're structural leader, they will generate some of the best growth in the market.

And you know what, which is very unusual, once in a decade opportunity or decade sort of impact, which is really healthcare company

all have some sort of downgrade, which is very unusual.

The reason being that they are very service-oriented businesses, nurses are hard to find, you know, and some of the pandemic, remnants of the pandemic impact is still lingering around.

is impacting some of the earnings.

But look, still with all that aside, we actually think this sector represents significant amount of opportunity.

We'll be buying more of that sector by shorting something else with very similar sort of characteristics and worth.

That makes sense.

Thank you, Jing Bei.

It's great to see you tonight.

Thank you so much for having me.