The Goldman Sachs headquarters in New York. Photo / Victor Llorente, The New York Times
Solomon was asked about the sheer size and number of AI mega deals coming to the equity markets for capital.
“We are definitely in a moment where there’s more greed than there is fear,” he was reported as saying.
Early this month, Anthropic filed for an initial public offering set to value the company at more than US$1 trillion ($1.69t).
Salt Funds managing director Matt Goodson said the advance in the US had been “incredibly narrow”.
The S&P500 index is up by more than 10% in the year to date.
However, Philadelphia Semiconductor Index, an index comprising 30 of the largest semiconductor-exposed stocks in the US, is up 94% in the same period.
“It’s an incredibly narrow advance and I think it mirrors what’s going on in the US economy,” Goodson said.
“It’s a K-shaped economy on steroids where you have record all-time low levels of consumer confidence coupled with a surging share market.
“If you’re an asset owner in the US market, you’re doing exceptionally well.
“If you’re Joe Blow working at your job in West Virginia, you’re not doing so well – and that’s mirrored in the results across all the various sectors and companies in the US market.”
The data centre, semiconductor-exposed stocks are flying, while many other companies are doing it tougher.
At the same time, one of the reasons they are struggling is that US inflation is not yet under control.
Those inflation concerns have been priced in by the bond market, which has seen US 30-year Treasuries hit 5% – revisiting levels not seen since 2007.
Accompanying the data centre-AI story has been a commodities boom, led by gold.
“Gold is just coming off its highs but it’s spawned a vast number of billion-dollar-plus companies in Australia that have a little gold mine.
“Iron ore has held but copper and lithium have performed incredibly strongly – and that’s partly on this whole ‘new’ economy thematic,” Goodson said.
Mining giants BHP and Rio Tinto, who once relied on iron ore for the bulk of their earnings, have seen contributions from copper skyrocket.
Salt Funds managing director Matt Goodson.
“There’s no shortage of copper projects to come on around the world, but that’s going to take time.
“And for now, the copper price is extremely strong, so that’s been a key distinction within the Australian market versus the New Zealand market,” Goodson says.
“From a local fund manager’s point of view, your degree of data centre exposure and your degree of resource stock exposure has had a lot to do with how you’ve done so far this year.”
The Iran war could not have come at a worse time for the New Zealand economy and the market.
“Things were starting to pick up and the market was starting to process that to some degree, but Iran’s clearly brought that to a screaming halt,” Goodson said.
“I think a key question for New Zealand in particular is whether we see a return to those conditions when the Iran situation is resolved, or whether the recovery is more gradual because any resolution is likely to be much fuzzier.
Things were starting to pick up and the market was starting to process that to some degree, but Iran’s clearly brought that to a screaming halt.
Matt Goodson
“My view is oil inventories are heavily depleted and refilling them is going to add several billion barrels a day to demand, even when the Strait of Hormuz reopens.”
While we may see oil and petrol prices come down from their current highs, it’s unlikely that prices would return to pre-Iran war levels soon.
Given the sheer scale of the US bull market, local fund managers could be forgiven for feeling overwhelmed.
The often-quoted US Buffett Indicator – named after investment guru Warren Buffett, is flashing warning signs.
It sits at roughly 237% – indicating the stock market’s total capitalisation is more than double the size of annual US GDP.
In other words, the US sharemarket has never been bigger, whereas New Zealand’s is small relative to the size of the other local economy.
According to Reserve Bank data, about $87 billion in KiwiSaver assets are tied up in overseas investments, compared with $55.9 billion domestically.
Given America’s dominance on world markets and index funds, fund managers estimate about a third of KiwiSaver is exposed to the US.
As the US market continues onward and upward, there’s plenty to keep fund managers awake at night.
Sharesies co-CEO and co-founder Leighton Roberts.
Right now it’s Iran and how much longer the artificial intelligence theme runs and whether it’s a bubble or not.
“As a New Zealand benchmarked investor, it doesn’t keep me awake so much because it’s not such a big impact here, but in terms of global markets, I think that would be Iran and the longevity and the AI boom,” Goodson said.
“It’s not taking a mega bear or a mega bull situation, but we are trying to hold a very balanced view that this could run for some time.”
Leighton Roberts, co-founder and co-CEO at investment platform Sharesies, said there is heightened local interest in the markets.
“There is definitely a lot of energy, for want of a better term, back in markets broadly and for a long time US markets have dominated flow, which is to be expected given the size of the market and the size of the businesses over there.
“Certainly a lot of that just goes into your index funds like your US500 and some of the other ETFs over there like the [Vanguard’s] Total World Fund are very popular.”
From a company point of view, the big names – companies like Nvidia, and the other “Magnificent 7″ stocks – dominate.
Roberts says the hype in the US can end up flowing through to larger trading numbers in the other markets such as Australian and New Zealand markets.
He says the talk around Elon Musk’s SpaceX IPO is creating interest in its competitors, such as the New Zealand-founded Rocket Lab, which is heavily favoured by Sharesies investors, rather than the likes of Nvidia and Tesla.
Roberts said about 36% of customers on the platform had a direct exposure to US equities.
He noted the current takeover offer for THL by BGH Capital (BGH) and the family interests of Luke and Karl Trouchet and said there was a risk of local companies becoming smaller parts of larger offshore businesses.
“Part of that risk has been driven by the return and the growth that you can get out of these large global enterprises compared with what you might be able to get from a much smaller company. So yes, that is absolutely a concern.“
Roberts noted some diversification away from the US as investors sought to lessen risk, but they were nevertheless inclined to hold in the face of sudden market downturns.
“Even if it is a bubble, I think most people do appreciate now that holding can be the best option.
“If you look at the massive crashes that we had sort of 2008, and then again during Covid – even if you’d bought at the peak before those big drops, drops – if you fast-forward 10-15 years, you’ve still done very well.
“So, I think people reasonably have high-risk appetites for that, and we don’t see a lot of switching and selling when these crashes happen.”
While the US market looms large in the investor mindset, there still remains a home bias, Roberts said.
“Our New Zealand customers do trade a lot more NZX stocks than they do the Australian ones, even though the market there is clearly much larger.
“Then there is the capital pool that KiwiSaver has to offer – as that money continues to need to find a home, I think that will be of benefit to the overall capital system in New Zealand.”
Mark Lister is the investment director at Craigs Investment Partners.
Roberts said if you look at what happens in Australia, super funds own a huge amount of the ASX companies but they are also large investors in PPPs and infrastructure.
That’s an interesting opportunity for us, where not everything has to be funded off the, not all infrastructure in New Zealand will need to be funded off the, Government balance sheet.
Craigs Investment Partners investment director Mark Lister said fund managers had to direct capital to where it could be best put to work.
“So as much as we’re patriotic, it’s very easy for us to just allocate more funds to the US or Japan or Europe or wherever the opportunities are.
“We’re somewhat agnostic, because you have to be. You’ve just got to do the right thing by your clients.”
Lister said the local market was dominated by “safe and steady” businesses – infrastructure, real estate, utilities and healthcare.
“We’re not as high-octane as some of those other markets out there, which isn’t a bad thing.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
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