Fortune favours the brave. Or maybe it’s a fool and his money?
Henry Jennings | Marcus Today
It is that time of year when volumes dry up a little, liquidity revolves more around the Christmas lunches and parties, and we try to figure out what 2025 has in store for us. As we head to the beach and the campground, we start to ruminate on the trend that will take up the mantle, thrusting all of this year's themes asunder.
This year has been all about the banks for the ASX. It has been an extraordinary year for four very ordinary banks. Not much in the way of profit growth at all, yet CBA has run from $110 to $160 and NAB from $30 to $38. Pretty impressive, given the lack of real growth. What has been the driver, is that all the doom and gloom of last Christmas, failed to materialise.
There has certainly been mortgage stress, but it hasn’t really hurt as much as many thought. The ‘Cosi Livs’ (cost of living) pressure has been acute in financial services, insurance, and even the price of coffee, but again, consumers have been remarkably resilient, and so have bank earnings. Let’s face it—the big four make $30 billion-plus, rain, hail, or shine.
The question is, will this continue? The $30 billion will—that is almost set in stone. But can CBA hit $200? It feels unlikely, not unless something changes dramatically. Could NAB hit $50? It is only trading on a 17x multiple. CBA, meanwhile, is trading on a multiple of around 30. So maybe the other three will close the gap.
If not the banks, what are the sectors that are going to drive the market? One overlooked sector is healthcare. It has been riddled with disappointment. CSL is the big elephant in the corner. It’s un-Australian to criticise it, but it really has gone nowhere for a while, trading in a range, $260-310. Fears of what Robert Kennedy might do with vaccines in the US have been the sword of Damocles hanging over its head, but maybe that fear is overdone.
The Vifor acquisition has been problematic—CSL paid too much and didn’t consider generics and patents seriously enough. COH, too, has been disappointing—a downgrade will do that. RHC has issues, including exposure to the UK and France with rising costs. SHL has been meandering around. PME has been the star but is very expensive. RMD recovered from the GLP-1 scare, though that remains an issue and could worsen next year. Plenty of trials and tests are coming in that space. I would be lightening positions in RMD and avoiding RHC and COH for now.
If I had to pick one to back in 2025, it would be CSL. Kennedy and Trump may target the middlemen and leave the flu vaccines alone.
Financials, outside of banks have also been winners this year. Huge mandated super contributions are turbocharging the emerging leaders in platform stocks. One that could surprise even more is AMP. It has had a good 2024, but it could kick again next year. The renovation of its Circular Quay landmark skyscraper is complete, and maybe that is a metaphor for the good times returning. Most analysts are still negative or, at best, neutral on it, but then again, they are all bearish on the banks. And that has worked out badly for funds.
The big question for me in 2025, is all about resources. The bifurcation between the big banks and the big miners has been extreme. Rewind to this time in 2023: resources were flying high on positive Chinese stimulus sentiment, and the banks were in a whole world of negative sentiment pain. FMG was $30, BHP was within a cooee of $50, and RIO $138. Yet, for all that promise, it just fizzled and died.
So, is 2025 the year resources get their mojo back? Given the issues facing China, that seems unlikely. But then again, if you had said to me 12 months ago that CBA would be close to $160, I would have laughed—perhaps you had pulled a cracker, and that was the joke. Not so. Maybe I need to look for a fortune cookie. The Chinese have issues ahead with Trump. But a crisis could bring out the best in them. Time will tell.
Sentiment and momentum have been the keys in 2024. That and concentration. Record highs in the US and elsewhere. I have lost count on how many all-time highs there were on the Nasdaq or the S&P. There is a risk that the bubble will be pricked. The man in the White House (now relocated to Mar-a Lago) and renamed the ‘Pink House’ will ensure he does all he can to keep the market from that prick.
If I was being really contrarian, it would be to buy the resources and sell the banks. Sir Humphrey Appleby would have been spot on to say that would be ‘very courageous.’ His code in ‘Yes, Prime Minister’ for asking, have you completely taken leave of your senses? Maybe. Resources though are a broad church. I suspect lithium will struggle. Copper may be a better way to go. If Bitcoin can be ‘valued’ at US$106,000, then what price Gold? I can also see a renaissance in uranium perhaps. It tried hard this year only to become radioactive again, but demand is growing. Plus, the sector is bombed out and shorted to the gunnels. Maybe we need to see some corporate activity in the sector. Cost-cutting would be nice too!
Next year when (if I write an article) you can judge me for the crystal ball gazing. I may have been ‘too courageous’ but fortune favours the brave. Or maybe it’s a fool and his money!
Enjoy the summer break. The themes of 2024 will inevitably run into 2025. They don’t suddenly change as the date changes. Perhaps results and reports in February, coupled with an election will changes things. The US inauguration definitely will!
Maybe the final word to Sir Humphrey again, "An investment portfolio should be like a ministerial speech—balanced, pleasing to the eye, and impossible to challenge." Sounds more sensible than my advice!
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