Ross Greenwood speaks to Chris Stott, Chief Investment Officer at Wilson Asset Management, about the All Ordinaries going through the 6000 barrier for the first time since the GFC
Introduction: All Rods over 6000…. what does that mean?
Ross Greenwood: Anyway, while that was taking place, my shares went down, the stock market went up, a new all time record for the ordinary, or not all time record but since the global financial crisis record, for the ordinaries index. Let’s now go to Chris Stott, the chief investment officer at Wilson Asset Management. Many thanks for your time, Chris.
Interview with: Chris Stott, Chief Investment Officer, Wilson Asset Management
Chris Stott: Hi, Ross.
Ross Greenwood: I’ll just pick up a quick one on my end for you. The share price went down, the market was clearly disappointed with what I’ve heard from the market today, from the management today.
Chris Stott: In my area, a really tricky position structurally is seeing a huge shift away from department stores globally. We’re saying department stores margins in Australia be some of the hottest, if not the hottest in the world over the last decade and that’s slowly coming on down.
Ross Greenwood: Okay. Let’s go the stock market. Generally, it has taken a long time for the Australian stock market to regain 6,000, it was a psychological barrier over the past couple of years. It tried to go through 6,000 previously and it failed on those occasions. Does this mean now that it’s clear sailing for the market now it’s gone beyond that point?
Chris Stott: The market feels like it wants to go higher short term. We’ve seen a flurry of corporate deals at the moment here at small cap end of the market. Also, today was the 10th year anniversary, caused a peak at the market, which was down on the 86,200, just over 6,800, we’re still a way off that mark on honestly that’s with that evidence. We are about — Certainly we have got strong momentum out of the US and the Australian economy is not great, but it’s okay. Certainly, valuations are certainly fair at these levels.
Ross Greenwood: It’s also fair to say that since the global financial crisis, that many companies have repaid their balance sheets. They’ve paid down their debts, smaller household debts have gone up, company balance sheets have basically improved, and debts have gone down. That means that they are relatively well-geared even if there’s not much economic growth around the place to actually pick up profitability because they’re not paying out massive amounts in interest.
Chris Stott: Yes. Certainly we’re starting to see that reflecting on, in terms of high levels of human activities, it’s expected in the next six to 12 months, particularly at small to mid cap end of the Australian equity markets, that there will be a higher level of human activity than usual. We’ve seen that, we’re already past that in the last week or so, and we expect more to come in the coming months.
Ross Greenwood: Which are the companies that are driving the market, the overall market higher at the moment? Because the banks have been fairly much going sideways, the mines have been okay, but even some of the commodity processes have come up. What’s driving the market right now?
Chris Stott: Resources are still strong relative to the rest of the market, particularly the small resource end of the market. That’s up 25% in the last four months. We’ve seen the rally in a large cap resource companies over the 2016 and in the early part of ’17 starting to reflect down into that small end of the market. Certainly, the resources and mining services in the market have been some of the standout sectors in particular in the last three to four months followed so far this financial year.
Ross Greenwood: I’ll tell you what. Great to have you on the program. Chris Stott is chief investment officer at Wilson Asset Management, as the market went through that 6,000 mark for the first time since the global financial crisis. Many thanks for your time, Chris.
Chris Stott: Thanks again, Ross.
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