Transcript:

Hi, I’m Ameya Hattangadi, Associate Portfolio Manager, at Morningstar Investment Management. Welcome to the Morningstar Market Minute, a video series where we explore markets, the economy, and other notable trends every Friday lunchtime. Let’s jump straight in.

In the news this week, the big story was ANZ (ASX:ANZ) being hit with a $240m fine from the corporate watchdog, ASIC. The bank admitted to incorrectly reporting bond trading data to the government, and to widespread misconduct affecting tens of thousands of customers.

The headline size is manageable—ANZ’s market value is around $98 billion, so the fine is roughly a quarter of a percent—but the bigger story is the cost and focus required to shore up non-financial risk systems. We still see the stock on a reasonable multiple with a robust dividend yield.

Offshore, all eyes were on the Federal Reserve with recession worries spreading amidst a cooling labour market and less-than-stellar economic data. Overnight we saw the Fed cut rates by 25bps to 4–4.25%, as widely expected. Fed Chair Jerome Powell emphasised the balance of risks has shifted to the employment side of their mandate, not just inflation.

Equities took the announcement in stride. The S&P 500 is still hovering near record highs after notching fresh records earlier this week. Compared to the broader global market, it’s interesting to me that despite making new highs and the AI buzz, US shares have trailed non-US markets. International shares, emerging markets and Australian shares have outperformed so far this year.

US market prices look extended on a variety of valuation metrics, and when valuations are this steep, it typically doesn’t bode well for future returns, especially over longer timeframes. We’re maintaining our cautious stance but see select opportunities especially in consumer facing businesses that have come under pressure recently. We see more attractive opportunities in emerging markets, particularly China, Brazil and Korea. In fixed income markets, with cash rates coming down and growth cooling, high quality bonds offer relatively attractive yields and will be a key shock-absorber if the slowdown deepens.

That’s it for this week. Thank you for watching, and see you next week for another Market Minute.