The Point

Samir Mehta: How luxury stock Prada is making a fashionable comeback

Samir Mehta: Tune in to Tencent Music if you’re looking for a hidden gem

WHO is the Bob Dylan of music streaming?

That’s the question Pendal’s Samir Mehta posed at the Sohn Hearts & Minds Conference in Adelaide last month.

For most, the answer is obvious: Sweden’s Spotify has revolutionised the way we consume music, dominating developed markets and setting the benchmark for subscription-based streaming.

But in investing – just like in music – real success is found beyond the obvious.

For every Bob Dylan – whose sandpaper voice and sermon-like lyrics changed the face of music worldwide – there’s a Sixto Rodriguez: overlooked by mainstream audiences until an Oscar-winning documentary, Searching For Sugar Man, revealed he had been quietly building a cult following in small but devoted markets.

“Spotify has done a brilliant job in developed markets, but there’s lots of other markets that still have potential,” says Mehta, who manages the Pendal Asian Share Fund.

“What we need to do is search for the Sugar Man of streaming.”

“Music follows exactly the same trends across the world – and the Sixto Rodriguez of streaming is China’s Tencent Music Entertainment.”

Aussie equities: How Xero and NEXTDC are leveraging AI technology

On a tour of the US late last year, Pendal equities analyst Elise McKay met with dozens of companies – and found generative AI was a topic in almost every meeting.

“There’s strong evidence that over the longer-term generative AI will have a big impact across the business landscape,” McKay said at the time.

Six months later, investors are still entranced by the US “Magnificent Seven” tech stocks.

But several ASX-listed companies are making solid progress in leveraging the technology, points out Elise. These include cloud-based finance software maker Xero and data centre manager NextDC – both held by Pendal.

In her latest update, Elise outlines XRO’s “Just Ask Xero” AI assistant and NXT’s Nvidia-based “AI factory” which is expected to launch in coming months.

Elise also addresses one of the big issues that continues to face the AI industry – access to power.

The industry is working on solutions including better computing efficiency, improved cooling technologies and alternative power sources.

Another Chinese property developer is in trouble. Here’s what it means

China’s property sector woes continued this week as another big property developer found itself in trouble.

Country Garden – China’s biggest property developer based on last year’s contracted sales – missed US$22.5 million in payments on two bonds.

The company is described as facing “periodic liquidity stress“.

Country Garden will probably find enough money to pay the coupon within the 30-day grace period, says our head of income strategies Amy Xie Patrick.

But it needs another $US2 billion for other payments, plus cash to complete pre-sold projects.

As the confidence crisis in the property sector deepens in China, levered property developers need strong new pre-sales to complete older pre-sales.

But monthly sales are well down on 2021 down and still falling.

“This is what is causing the ‘periodic liquidity stress’ – though I would describe it as existential rather than periodic,” says Amy.

Here Amy explains the detail and what it means for the global outlook

Amy Xie Patrick: The market’s getting excited about China again, but it may be premature

THE latest message from China’s top decision-making body caused a stir this week when investors noted softer language on property.

For the first time since 2016, President Xi Jinping’s signature slogan that “houses are for living, not for speculation” was missing from a note that followed a Politburo meeting.

That got the market excited about the potential for a meaningful China stimulus push via the property sector.

But the market is getting ahead of itself, says Pendal’s head of income strategies Amy Xi Patrick.

“The line has likely been dropped because it’s simply no longer needed. Buyers are no longer speculating. They are actively selling in an attempt to exit the property game altogether.”

Amy believes there is no silver bullet for the Chinese economy.

Are we still catching cold when America sneezes?

Last week Pendal’s Samir Mehta argued that the US regional bank turmoil shouldn’t discourage investors from considering Asian bank stocks.

Clive Beagles, a senior fund manager at Pendal’s UK-based affiliate J O Hambro, has a similar view on British bank stocks.

“Many of the UK banks are posting returns on equity of close to 20 per cent in the first quarter,” says Clive.

“But they all trade at a discount to book value – some of them at 0.4 or 0.5.

“There’s an old assumption that when the US sneezes everyone else catches a cold, but I do slightly wonder if it’s going be different this time.

“If this is a crisis, it’s the first one we’ve had where the US dollar is going down rather than up.”

US dollar weakness could indicate that something different is going on from the usual global contagion, Clive argues.

It could be a sign of a period where the US is one of the slower-growing economies in the developed world rather than its traditional role as one of the fastest, he says.