[00:00:40] Arvid, last year the focus was all about interest rate rises. This year people have been talking about rate cuts. Can you give us your view on how you think this might impact portfolios?
Economic cycles have unfolded more slowly than initially anticipated, with both inflation slowdowns and consumer resilience defying earlier expectations. Amidst this backdrop, the prospect of rate cuts looms, with the Fed hinting potential actions. While markets may initially respond as expected to these rate adjustments, continued inflation deceleration could sustain market growth, any unexpected inflation uptick may lead to market volatility. However, in the long term, equity returns are primarily driven by earnings outlook rather than interest rates.
Looking ahead, structural themes such as AI, cloud migration, and the energy transition are anticipated to underpin market growth, offering tailwinds for both market-wide and individual stock performance. Despite short-term fluctuations influenced by interest rates, the focus on long-term structural trends remains key for investors navigating the evolving market landscape.
[00:03:15] The Magnificent Seven have been driving the market recently, which includes NVIDIA, we don’t hold this in our portfolio, can you tell us why and provide some insight into other businesses that we have in the portfolio in this sector?
The concept of the “Magnificent Seven” (Mag 7) stocks, which once dominated market performance, has significantly diminished in relevance, with performance across these stocks becoming increasingly divergent. NVIDIA stands out as a strong performer within this group, although its high-risk profile presents challenges for portfolio allocation strategies focused on managing risk. Despite not holding stocks like Tesla or NVIDIA, the Fund remains optimistic about market opportunities, prioritising earnings outlooks and careful portfolio construction. Instead of directly investing in NVIDIA, the Fund has allocated to other strong performers like ASML in the semiconductor space. Microsoft and Amazon remain the fund’s largest positions, with additional exposure to select Mag 7 stocks offering compelling opportunities, particularly in AI-related sectors, amidst economic recovery.
[00:05:28] Arvid, you’ve just been to Washington. Can you give us an overview of what you’re hearing on the ground there and in particular the US election?
In Washington, discussions with policymakers and defence industry insiders have provided valuable insights into the trajectory of AI innovation and adoption. Feedback has been positive, not only on advancements in AI technology but also the increasing adoption rates crucial for generating tangible returns. Our confidence in the potential of AI has been bolstered by these discussions.
While the risk of a US-China confrontation over Taiwan has been historically considered low, recent developments suggest heightened US military presence in East Asia, enhancing deterrence against potential aggression. Economic factors, including China’s relative weakness, further diminish the likelihood of a conflict over Taiwan in the foreseeable future. Looking ahead, the upcoming US election may introduce market implications, with a potential second term for Donald Trump viewed favourably for companies aligned with a pro-growth agenda and deregulation, despite potential challenges for those caught in US-China tensions or associated with progressive policies.
[00:09:21] Nikki you’re planning a trip to China in the near future, we don’t have any China holdings in the portfolio, what are you hoping to gain from this trip?
Despite recent challenges and a rapid derating of assets, China remains a significant player in the global economy, ranking as the world’s second-largest economy. The country’s industrial prowess, driven by initiatives like the Made in 2025 strategy, has reshaped key industries such as renewable energy, electric vehicles, and batteries. China’s dominance in these sectors is poised to impact global dynamics, with the country already producing over 50% of the world’s vehicle production capacity.
As China seeks to expand its export market, particularly in areas like electric vehicles and batteries, navigating tariffs and competition from other countries will be crucial. While this growth presents opportunities for China’s economic development, it also poses challenges for competitors in terms of cost competitiveness. Understanding the interplay between China and other economies is essential for businesses operating within China or competing against it in various sectors.
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