ASX Weekly Wrap 01/10 - 05/10

Another quiet week on financial markets saw the XJO suffer some small losses of 22.10 points or 0.36%. Again trade wars between China & the US dominated headlines, with US 10 year Treasury bond yields soaring close to 3.20% and emerging market currencies/share markets being sold off because of this. Our high was 6,207.60 on Monday and our low was 6,118.40 on Tuesday.

Again financial markets have given us little to talk about apart from some macro events and data. It was all quiet on the ASX front when it came to major corporate news so again I have nothing to offer there. We did receive a heap of data to digest locally so I will touch upon that to start with.

First up we had the RBA meet to decide on our official cash rate, and it came as no surprise that they kept the rate on hold again at 1.50%. Commentary surrounding the Australian economy was generally bullish with most metrics expected to come in around long term averages. They did note concerns surrounding the softening of the housing market and credit growth but did note it’s nothing to be too worried about at this stage. With the US increasing their official rate to 2.25% the gap continues to widen with the US and Australian rates and it has impacted the AUD sending it down further towards the 70c level.

Retail sales were also released this week which saw a +0.3% read vs +0.2% expected. Whilst it was healthy to see a beat on forecast figures, overall they are still soft. Now some economists out there still suggest Australian households are not spending, mainly due to sluggish wages growth, but I still feel it’s more the deflationary environment biting into the figures than a lack of spending. I have said it before but areas such a clothing, food, tech etc. are having some major price deflation, thus the dollar amount we are spending is going a lot further than it used to a few years ago. The way we spend is also changing. A lot more is done online, coupled with a savvier shopper and increased competition (Aldi, Amazon etc.) it all adds up. I have no doubt, Australian households are being more conservative with their cash as well, we always have been, but I don’t think it’s having the impact others are attributing to it. I will note petrol prices may start eating into our spending habits a bit more moving forward. A lower AUD and higher oil prices has seen petrol prices around 1.68/l here in Adelaide. I dare say it’s similar in most capital cities. Finally annual retail spending has lifted to +3.8% year on year, the strongest figures since May 2017.

Finally the Australian trade balance for August was released on Thursday, which was also a beat, and the eighth consecutive surplus we have recorded in a row. The official figure came in at a $1.604bill surplus with exports rising 1% and imports staying flat. The figure is larger than both the forecasted $1.4bill and last month’s $1.551bill. A lower AUD is really helping push tourism and our services sector along. Also Asia’s thirst for our LNG continues to grow, so expect continued surpluses moving forward. These are very healthy figures and should add some weight to our overall GDP numbers whilst also bring our national account figures back into the black.

The only news to come from overseas, this week, came via the US monthly jobs report for September. The headline figure of +134,000 jobs added was lower than the estimated +185,000, but also helped push the unemployment rate down to a multi decade low of 3.7%. This was mainly on the back of last month’s jobs report being revised upwards to +270,000 from +201,000 and the participation rate staying stable at 62.70%. Wages remained sluggish with a year on year read of +2.8%, down from the 2.9% read last month. Overall it shows just how strong the US economy still is with strong jobs figures being released despite the US being a full employment. However with core inflation and wages growth still sluggish it may give the Fed reason to pause rate hikes for a period of time to let some inflation filter through the economy.

Since there is no major stock news to cover this week I thought I would touch on a sector of the market I envisage will see above trend growth for the next decade or so, and how you can gain exposure to it on the ASX. The sector is the Artificial Intelligence (AI) and Robotics space, which without going to the high risk of town, is hard to get exposure to here on the ASX at an individual stock level. Over the next decade or two I feel the globe is going to enter an age of exponential growth in AI and robotics as technology improves and becomes more cost efficient. It make more sense for high volume industries to automate their production lines taking costly human wages out of the equation, plus the ability to run their factories 24/7 without shift changes or legislated breaks. Companies are continuously investing in ways to bring the cost of production down and automating them is probably the most efficient way. Only last week Coles announced it was spending $800mill+ on automating their supply chain to help bring down costs. Pallet manufacturer Brambles, said just over twelve months ago it wanted it US factories to be 80% automated by 2020.

AI, although more primitive in its advancement, probably has unlimited potential when we think of applications for its use. Its currently being used in simple every day devices such as your phones (Siri, Alexa, and Google Help), Netflix show/movie recommendations and email, learning what emails to filter out as junk/spam. Moving forward it will have a big say in the autonomous vehicle industry, gaming, defence etc. The thought of machines being able to think for themselves and problem solve quicker and better than humans is both an exciting and a scary prospect. Especially for those of us who are fans of the Terminator movie franchise. However one cannot underestimate its importance in our human technological advancement.

The best way to gain exposure to this rapidly expanding sector on the ASX, in my opinion, is via Exchange Traded Funds (ETFs). Now I have run through what ETFs are before and how they operate, but just a quick refresher an ETF is an investment fund that is traded on a stock exchange similarly to a share. They are similar to a listed investment company such as ARG, AFI, WHF but often passive in investment nature with lower fees. The got the name ETF by originally replicating the compositions of certain exchanges within their investments before they expanded in different assets classes and specific sectors. Like shares they have their own prices and can be bought and sold exactly the same as a share.

The two ETFs that give us the best exposure to the AI & Robotics sector are the Global Robotics & AI ETF (ASX: RBTZ) managed by Betashares and ETFS ROBO Global Robotics and AI ETF (ASX: ROBO) managed by ETF Securities. Both with give you excellent exposure to the sector, but each have subtle differences which are detailed below.

As you can see from the above both are active funds but RBTZ is a more concentrated pure play investment, whilst ROBO is more diverse and includes many layers of the value chain. RBTZ is concentrated more in Japan whilst ROBO has more US companies held within it. Finally, and maybe the most importantly, RBTZ is a market cap weighted investment style, allocating larger portion of the portfolio to larger companies and so on, whilst ROBO is an equal weighted investment scheme. Below is also a summary of each ETF’s top ten holdings.

ROBO

RBTZ

Now I am not going to say which one is a better investment over the other as it comes down to your personal circumstances and investment criteria, but you can find all the information you need for either by contacting me or visiting their respective web pages RBTZ & ROBO.

Not much has changed technically with the XJO. Longer term it still looks really bullish and on its way to new highs in 2019, but short term we could see some more weakness. Last week we managed to reclaim that short term up trend (green tram lines), but as of today we have fallen back below that and are headed towards to 200dma and 6,000 level again.

Looking forward to the week ahead we have China resuming trade after their week long holiday, but outside of that there is nothing of note scheduled. Was a quiet weekend personally too as I did a bit of shopping but spent most of it just hanging out with my two boys and wife. Hope you all have a wonderful week and stay safe. Speak to you all soon. Go Crows!

heath@hlminvestments.com.au

0413 799 315

Important Notice

Any advice in this article should be considered General Advice only and does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. I am happy to assist you in this process. To do so, I will need to collect personal and financial details from you before providing my recommendations. Please note the author may own shares in the companies mentioned in the above blog.