Mark LaMonica: Welcome to another edition of Market Minute. We’ve got Joel here today. We’re going to talk a little bit about the economy then go into how this is impacting markets. So we did have some unemployment news last week. Would you like to summarise that and what the implications are.

Joel Grosvenor: Sure. So the Australian Bureau of Statistics released some labour stats last week that showed the unemployment rate had increased to 4.7% in September. So there is a clear trend from the start of the year where it was sort of the low fours and moving up closer to the 5% the RBA is sort of looking for.

Mark LaMonica: We’ve heard obviously unemployment going up. There are continued cost of living pressures. Interest rates are higher, mortgage payments are higher. How is this impacting the economy. And I guess what is what are those economic issues doing to the market and how the market is performing.

Joel Grosvenor: So the tends there seems to be a bit of a slowdown in economic growth. There are some segments of the market, particularly those that are more consumer exposed or exposed to the consumer spending, that are struggling. Small caps as a segment of the market have underperformed large cap stocks pretty significantly over the calendar year to date as a result of that.

But there’s also some sort of structural changes there that are leading to that as well.

Mark LaMonica: So maybe go into a little bit of those structural changes because yeah, I think small caps, less exposure or more exposure to the economy. That makes sense. But what are the structural forces?

Joel Grosvenor: We’re seeing a lot of active equity managers underperform the index. And the small and mid-cap areas of the market tend to be where they try to find opportunities to outperform the broader market cap weighted index. But over the sort of last year or two, we’ve seen some pretty high profile names, close up products or even closed down altogether.

And so there’s a bit of a trend there in terms of who can actually participate in those segments of the market. And that’s changed. We’ve also seen super funds gravitate towards more passive implementations or more systematic active equity strategies as well. So again, that’s taking money out of those segments and making it more broad based in terms of their actual exposures to the market.

Mark LaMonica: Then finally, we have seen a lot of M&A activity recently in the last week. Is this a indication that perhaps there are bargains out there that investors are missing out on, and that these a lot of these companies are being taken private? Or how would you read that situation?

Joel Grosvenor: Yeah, I think so. Like there’s a lot of discrepancy in terms of the valuations that are applied to small and mid cap stocks at the moment. There are a lot of opportunities out there that look quite attractive. I think it’s just around who actually has the capital to participate and take advantage of those valuations. And right now it seems like private equity is stepping in to take a lot of those opportunities off the market and taking them private and taking advantage of no one else being willing to step up and buy those stocks.

Mark LaMonica: Okay, great. Well, thank you very much. Really appreciate the overview of what’s happening.