The Point

Crispin Murray: What’s driving Aussie equities this week

Crispin Murray: What’s driving Aussie equities this week

Power-hungry AI a watch-out for equities investors

Big US tech stocks are soaring on a wave of new, advanced AI applications.

But similar to Bitcoin’s early days, excited AI investors may be overlooking the technology’s extremely  high power costs and potential associated sustainability issues, says Pendal equities analyst Elise McKay.

That puts a question mark over the industry’s prospects – and the long-term investment case, says Elise.

“Estimates are that every time you query ChatGPT, it is 300 times more expensive than a Google search.”

A Stanford study found that training OpenAI’s popular GPT-3 generative AI system contributed almost 10 times the lifetime emissions of an average car.

The newer GPT-4 model was an estimated eight times more power intensive again, she says.

Brenton Saunders: Traditional energy sectors look like winners in a Trump world

Sweeping policy changes under a unified US Republican government signal significant shifts for investors, with traditional energy and nuclear set to benefit amid a slower path to rate cuts.

That’s the view of Brenton Saunders, who has more than 25 years of experience in resources. Brenton leads Pendal’s midcap strategy, which offers exposure to fast-growing ASX sectors.

“As a broad brush, you could see more of a reversion to traditional energy. There’s an expectation for more traditional oil and gas production, certainly in the US and the Gulf of Mexico,” he says.

“That should keep energy availability relatively elevated, which ultimately should benefit economic growth and the consumer.”

But geopolitical uncertainty means investors should be relatively conservative for now.

“Diversification is probably the most important part of the next three to six months.”

ASX mid caps: Global uncertainty calls for a balanced approach to investing

Right now equities investors are forced to consider a complex interplay of factors when making asset allocation decisions.

“Escalation of tensions in the Middle East has had a tangible impact on energy markets, raising concerns about inflation and causing bond yields to rise,” notes Pendal mid-cap equities portfolio manager Brenton Saunders.

Strong US jobs numbers are contributing to upward pressure on yields, while there is uncertainty about China’s stimulus plans.

“This has sparked a notable rotation in Australia, with investors shifting away from large-cap financials and growth stocks towards resources and value-oriented equities,” says Brenton.

In the face of these competing forces, Brenton emphasises the importance of a balanced portfolio approach.

“Our base view is that markets will remain strong through the end of the year, as interest rates are expected to come down, albeit slightly slower than previously anticipated,” he says.

“[But] it’s important not to have big macro tilts in your portfolio and to be able to produce steady returns through any outcome.”

ASX mid caps: Opportunities amid the noise

“Investing in companies that will be beneficiaries of an ongoing interest rate easing cycle – real estate investment trusts being an obvious one – along with long duration, high multiple sectors, especially the growth stocks, should provide rewards,” says Brenton Saunders, portfolio manager at Pendal’s MidCap Fund.

But that doesn’t mean investors should buy into all interest rate sensitive sectors.

“Discretionary retail is still a tough one to call. Some parts of it are doing really well and others are quite challenged,” he explains.

“Some of the deeper cyclicals, whether they be industrials or resources, will probably take longer to improve in a convincing way. Commodities will depend on the efficacy of ongoing Chinese stimulus, which to date has been unconvincing.”

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