It has been a volatile quarter for markets with significant movements in junk rallies, China reopening, violent bond market swings, bank collapses, and a significant uptick in the M&A cycle. Despite this, equity markets have closed the quarter positively and with a sense of relative calm.
A question that arises is whether we witnessed a banking crisis or a classic example of natural selection where the strong take from the weak. The tables show that the deposits withdrawn from US regional banks went dollar for dollar into the largest 25 US banks, which suggests the latter. The strong institutions have become even stronger, and this is one reason why global equity markets continue to rise.
Another contributing factor is the lack of new equity supply. While the cash M&A cycle has increased, the IPO cycle is at a 4-year low, and this is having broader ramifications.
Additionally, many institutional investors find themselves uncomfortably overweight in private assets and are directing new inflows into equities, leading to pension fund/super fund rebalancing demand.
Global equity markets continue to take the path of least resistance, with the Dow gaining 0.4%, S&P500 gaining 0.6%, and Nasdaq gaining 0.7%. All three major US indices are above their 50, 100, and 200-day MVAs. Real Estate, Tech, and Discretionary led Wall Street as the “risk-on” tone continues.
There was also US dollar weakness, which created a bid in USD-priced commodities. The precious metal complex gained 2% (Gold, Silver, Platinum), WTI Oil gained 2%, Copper gained 1.6%, and Iron Ore rose 2.3%. As a result, BHP ADR’s are closing the quarter out well. The AUD/USD cross-rate is resilient at 67.10 USC, and it is recommended that investors should be fully hedged to AUD/USD.
The oil price has clearly bottomed, and as we enter the 2nd quarter, there is no better sectorial risk/reward scenario than global and domestic “energy complex” companies.
WiseTech Global (WTC) is the most under-owned large-cap stock in Australia, but it is also the number one technology stock in Australia and, in my view, one of the top 5 SAAS companies in the world. It is an outstanding Australian-owned and operated business that has potentially decades of growth ahead as it cements its place as the world’s leading provider of essential software to the freight forwarding and global logistics sectors.
WiseTech is the classic founder-led technology business. Founder, 37% shareholder, and CEO Richard White has had his hands firmly on the wheel since day one and continues to do so today. He has endured shorting attacks, skeptical analysts, and a skeptical domestic investment community who couldn’t understand the multiples paid globally for superior SAAS businesses and the lack of dividend yield (yield has been sacrificed for R&D spend).
WTC is up 5-fold from the lows of the shorting attack, and it is probably fair to say the shorters are otherwise employed. In a similar playbook to Fortescue (FMG.ASX), this has not been one-way traffic to large-cap status and substantial free cash generation. It is no longer a question of “does WTC work?” but rather a question of what does the future hold and how should we value it?
In summary, global equity markets are continuing to rise, with a lack of new equity supply and institutional investors directing new inflows into equities. The oil price has clearly bottomed, and the energy complex is a sector.
