November 24, 2025 • 11 mins
There’s plenty of fear in markets right now, with big moves across both Wall Street and the ASX. So how do you block out the noise, and find the opportunities amidst the uncertainty?
Lochlan Halloway, Equity Market Strategist at Morningstar, talks to Sean Aylmer about investing in volatile markets, including a couple of companies that have fallen a long way from their previous highs.
This is general information only, and you should seek professional advice tailored to your circumstances before making decisions.
Find out more: https://fearandgreed.com.au/
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Welcome to Fearing Greed, Q and A. Will we ask
and answer questions about business, investing, economics, politics and more.
I'm Sean Aylmer. There's painting of fear in markets right
now with big moves across both Wall Street and the AX.
So how do you block out the noise and find
the opportunities amid the uncertainty. This is general information only,
and you should seek professional advice tailored to your circumstances
(00:28):
before making investment decisions. Lachland Halloway is the equity market
strategist at Morning Star. Lachland, welcome back to Fear and Greed.
Speaker 2 (00:36):
Thanks for having back Sean.
Speaker 1 (00:38):
First up, what do you make of the last few
weeks in markets? Pretty crazy?
Speaker 2 (00:43):
I think that's fair, But I think it's also true
that equity markets in general are pretty crazy, pretty volatile.
That is just the nature of the beast. We need
to accept that. Volatility is the constant companion. It's the
price for a mission ticket to ride, So accept it.
We deal with acknowledge it. But you know, to get return,
you have to accept risk. So so that's how i'd
(01:03):
phrase it. Over the last couple of weeks.
Speaker 1 (01:05):
Okay, you've published Morning Stars twenty twenty six global outlook
is that saying that volatility is going to this type
of volatility because there's more now than there has had
been earlier in the year, we'll continue into next year.
Speaker 2 (01:19):
I think it's reasonable to expect that there will be
things that come out of the work next year. We
still have a lot of unresolved issues, of course, around
geo politics and the tariffs and Trump in general. I
think that's you know, of course, we've got monetary policy
questions all over the place too, with a federal Reserve
and also our RBA domestically, so you know, a lot
of that is still unresolved. I think we can expect,
(01:41):
you know, another year of risk an uncertainty in twenty
twenty six. What we've said in our global outlook is
that investors should be preparing for that rather than trying
to predict it. That's the way we're approaching our global outlook.
Speaker 1 (01:54):
Okay, so how do you see through the noise? I mean,
you mentioned a bunch of things. There's some noise, some
not the registrates isn't noise, I mean, that's it kind
of drives the economy. Trump Ism. There's certainly noise around
that how do you work out what is noise and
what's not well.
Speaker 2 (02:11):
I think a nice way to think about sort of
bucking it up is to focus on the sort of
knowable and important things for your investments or your portfolio
of stocks. And we're talking about equities here, and I
think it's true that things like interest rates and tariffs
are certainly important. I think that the knowable side of
(02:33):
the equation, though, is a little bit more ambiguous, because
we're not at a very high level. The wins of
economics have a great deal of uncertainty in there. There
are a lot of people spend a lot of time
thinking about what the feed or the RB might do
on this particular meeting all the next and I don't
think as equity investors we're probably we're probably best off
spending a lot of time thinking about that and competing
(02:53):
on that sort of turf. I think we're better at doing,
and where we should spend our time is thinking about
the microeconomic of the companies that we look at their
competitive advantages, their moats, their capital allocation, the balance sheets.
Those sorts of things I think are where we should
be thinking about it. If there is a fundamental change
on that side of the equation rather than the big
(03:15):
broad stroke macroeconomic themes.
Speaker 1 (03:18):
Okay, so we'll kind of we'll get to maybe a
couple of companies later on. Where we stand at the moment,
How should investors be thinking about positioning themselves. Are the
megacaps still what they were? Is it a mid cap market?
Is a small cap market? We didn't think that was
going to happen, but it sounds like, well, sorry, we
thought that was going to happen for the last three years,
but maybe it actually is happening. Now. Where do you
(03:41):
position yourself?
Speaker 2 (03:42):
Yeah, A few things you know on that, I'd say, firstly,
in terms of very broad principles about positioning, I think
diversification is you can't have a state. How important that is,
particularly in a market that looks as concentrated as this one.
You know, last I checked, I think the ten largest
stocks in the US account for about thirty five percent
of the market capitalization of the totally U West market,
(04:04):
which is enormous and much larger than it was, you know,
even during dot Com, and investors rightly point at that
and say, well, is that is that a concern? You know,
it may be, we don't think the market, you know,
is necessarily mispricing AI stocks. We don't on to caution it.
We don't sort of see bubble territory yet. But nonetheless,
a lot of equity portfolios are coming very aliant on
(04:24):
one thing going right. And even if that is a
great basket to have all your eggs in, we don't
really know how it all plays out yet, so I'd
be cautious about, you know, over leveraging to one particular theme.
Looking outside the magnificent seven probably makes make some sense
just from a versification perspective, so we should think about that.
(04:45):
So that sort of ties in diversification being very important.
And also, you know, I think the thing about just
not having big one way bets on geopolitics or on
on investing themes like AI.
Speaker 1 (05:00):
So with that in mind, you do need to be
interested in the big caps, but you also need to
be interested in others. So what about the mid cap
market at the moment.
Speaker 2 (05:10):
Yeah, Look, I think in Australia we're seeing that as
as probably better fodder for investors looking looking for value
the large caps in Australia, and I'm talking here austract.
You know that's probably were well folks, most about times.
Look that they're dominated, of course by the big banks
and two electric center, the miners. The banks. To us,
(05:31):
all the major banks look over valued A and Z.
For quite a while there had looked like reasonable value,
but now that's closed as it's caught up to its peers. CBA,
even after having sold off twenty percent from its recent peak,
still looks very expensive on a PE of twenty five
times and a price to book of almost four times,
which are not multiple's valuation multiples. Investors of historically been
(05:51):
willing to pay for banks, and we just don't necessarily
that they should either. So looking a bit further down
the size spectrum, I think makes a lot of sense.
We can still get a lot of quality businesses but
aren't overpriced banks or miners who you know do also
looking kind of reasonably value, but it's not a lot
of upside there. I think there are some sort of
structural risks that those minus face as well. So generally speaking,
(06:15):
outside the ASEX twenty, we think it's it's it's better
better hunting ground for investors at the moment.
Speaker 1 (06:20):
So there's a lot of options there. So you know,
from twenty one to one hundred or are you thinking
one hundred to two hundred, and let's call those ones
the small caps. Yeah.
Speaker 2 (06:29):
Look, I think most opportunities we're seeing right now are
still in the small caps. So outside the ASEX one hundred,
that end of the market has had a fantastic year.
I think it's the return year to date small ordinaries.
It's something like twenty five percent there thereabouts. In the
ASEX two hundred to be about six percent, So it's
a massive outperformance immediately after a number of years of lagging.
(06:53):
You know, it's a huge performance. Golf opened up between
the small caps and large caps, you know in sort
of late twenty twenty one too, when concerns about higher
inflation and recession drove a lot of investors think away
from that end of the market on you know, safe
haven flight quality sort of style behavior. That's come back
in a big way this year, although I would carveout
(07:14):
that a lot of that is to do with materials,
you know, particular materials, the commodities that matter for that
end of the market, like gold and copper and lithium
and rare earts. But because of that, because it's been
mainly a commodity story for the small caps this year.
It actually means that a lot of the other non
commodities businesses they haven't seen those roaring share price gains,
and that's still offering pretty reasonable value for the most part.
Speaker 1 (07:37):
Okay, with all that in mind, and diversification is king,
you know, keep thinking about meda caps, mid caps, and
small caps. There's a couple on the list that you've
put out in the last week or two which I
think are particularly interesting ones. Domino's Pizza. We hear so
much about it. It contrarian, lackland, contrarian backing, dominates.
Speaker 2 (07:58):
Yeah, why do you like? Its ago wouldn't have been
putting out in the small cap bucket, right?
Speaker 1 (08:02):
But how thick that's true?
Speaker 2 (08:04):
And certainly is you know, at least in the way
it's priced by the market shadow of its former self. Look,
I mean there's a bit going on with Dominoes. I
think the biggest one weighing on at the moment is
the cyclicality, Like the macro is clearly hurting them right now.
We're still recovering from a very very tough period for retailers,
(08:26):
fast food retails, discretion retailer more broadly, with rate cuts
and high inflation, that's affecting our entire fast food quick
service restaurant coverage. You know Colin's Food example, the KFC
operator GUZMANI Gomez here, but also globally the QSR operators
are struggling. Dominoes is no exception to that. We think
(08:46):
that should improve over the next year, as you know,
we continue to see the effects of those rate cuts
and pulling back inflation. It should bode very well. And
on top of that, they've also got the sort of
moider syncratic challenges that they've created for themselves in a
way by over expanding, particularly during COVID, where they probably
misread the durability of you know, staying at home and
eating pizza. When that change, that expanded too broadly and
(09:09):
it became sprawling, their pricing strategy got sort of bungled,
and now they're raining that back in. But what you
have to assume today to get to the current share
price is basically no news stores normal margin expansion. We
think that's very pessimistic, and so the marginal safety for
us is absolutely there right now in Dominoes.
Speaker 1 (09:29):
That means it's very much evaluation story, then, is that right?
Speaker 2 (09:32):
I think that's right. Look it's basically a deep value
stock right now. Not much we think has to go
right in terms of just showing it there is still
growth there, they can get their margin back. Part of
that's can to be cyclical. Part of that's going to
be them actually doing the work when the pricing strategy
to try and rebuild consumer trust in their product. And
at the franchise e level, once a franchise a profitability
comes back, then you can start thinking about the rollout. Right,
(09:54):
you can't roll out stores if you can't encourage franchis
you know, open up a store for you. So those
few things have to go right for them. It's not
going to happen overnight, but that we think is a
credible pathway. They're back to growth for them, back to
margin expansion, and again at these prices, you really don't
have to believe much to make that bet work.
Speaker 1 (10:11):
Another one and we are almost out of time, but
it's very quickly. ADP education a couple of years ago,
you couldn't get enough of it. Everyone loved IDP education
legislative changes, which really it fell out of bed. It's
share price has fallen out of bed. Why do you
like that one?
Speaker 2 (10:24):
It looks similar story in somewhere so Domino as it
wasn't Darling that's now fallen from Grace. I think that
there's a very good structural story there with IDP around
the need for NETO sism migration, particularly you know, student
student visas to help support you know, Australia's tourism exports.
It's a big part of the economy in our big
part of our export balance, some sixty billion dollars a
year I think in Australia is spent on student related
(10:48):
expenditure here. So I don't think that's going to go away.
I don't think Australia should be looking to push that away.
There's obviously the political heat around it at the moment,
but I think, you know, if when we get this
housing issues sort of out, that seems like an obvious
place to be trying to help you drive growth in
Australias expert balance beyond the world of commodities. I think
that's a big part of the story, not just even
(11:09):
in their other markets too, like Canada. So again it's
a short term challenge absolutely around migration. We don't set
asisting forever. They're the highest quality operator in the space
and they should win when this turns around.
Speaker 1 (11:20):
Lachlan, thank you for talking to Fear and Greed.
Speaker 2 (11:22):
Thanks for having me.
Speaker 1 (11:22):
It was morning Start equity market strategist Lachlan Hallaway. Just
a reminder to seek professional advice before making investment decisions.
If you've got something you'd like to know, then send
through your questions on LinkedIn, Instagram, Facebook, Right, Fearinggreed dot
com dot A you. I'm Chanelma and this is Fear
and Greed Q and Day
Welcome to Fearing Greed, Q and A. Will we ask
and answer questions about business, investing, economics, politics and more.
I'm Sean Aylmer. There's painting of fear in markets right
now with big moves across both Wall Street and the AX.
So how do you block out the noise and find
the opportunities amid the uncertainty. This is general information only,
and you should seek professional advice tailored to your circumstances
(00:28):
before making investment decisions. Lachland Halloway is the equity market
strategist at Morning Star. Lachland, welcome back to Fear and Greed.
Speaker 2 (00:36):
Thanks for having back Sean.
Speaker 1 (00:38):
First up, what do you make of the last few
weeks in markets? Pretty crazy?
Speaker 2 (00:43):
I think that's fair, But I think it's also true
that equity markets in general are pretty crazy, pretty volatile.
That is just the nature of the beast. We need
to accept that. Volatility is the constant companion. It's the
price for a mission ticket to ride, So accept it.
We deal with acknowledge it. But you know, to get return,
you have to accept risk. So so that's how i'd
(01:03):
phrase it. Over the last couple of weeks.
Speaker 1 (01:05):
Okay, you've published Morning Stars twenty twenty six global outlook
is that saying that volatility is going to this type
of volatility because there's more now than there has had
been earlier in the year, we'll continue into next year.
Speaker 2 (01:19):
I think it's reasonable to expect that there will be
things that come out of the work next year. We
still have a lot of unresolved issues, of course, around
geo politics and the tariffs and Trump in general. I
think that's you know, of course, we've got monetary policy
questions all over the place too, with a federal Reserve
and also our RBA domestically, so you know, a lot
of that is still unresolved. I think we can expect,
(01:41):
you know, another year of risk an uncertainty in twenty
twenty six. What we've said in our global outlook is
that investors should be preparing for that rather than trying
to predict it. That's the way we're approaching our global outlook.
Speaker 1 (01:54):
Okay, so how do you see through the noise? I mean,
you mentioned a bunch of things. There's some noise, some
not the registrates isn't noise, I mean, that's it kind
of drives the economy. Trump Ism. There's certainly noise around
that how do you work out what is noise and
what's not well.
Speaker 2 (02:11):
I think a nice way to think about sort of
bucking it up is to focus on the sort of
knowable and important things for your investments or your portfolio
of stocks. And we're talking about equities here, and I
think it's true that things like interest rates and tariffs
are certainly important. I think that the knowable side of
(02:33):
the equation, though, is a little bit more ambiguous, because
we're not at a very high level. The wins of
economics have a great deal of uncertainty in there. There
are a lot of people spend a lot of time
thinking about what the feed or the RB might do
on this particular meeting all the next and I don't
think as equity investors we're probably we're probably best off
spending a lot of time thinking about that and competing
(02:53):
on that sort of turf. I think we're better at doing,
and where we should spend our time is thinking about
the microeconomic of the companies that we look at their
competitive advantages, their moats, their capital allocation, the balance sheets.
Those sorts of things I think are where we should
be thinking about it. If there is a fundamental change
on that side of the equation rather than the big
(03:15):
broad stroke macroeconomic themes.
Speaker 1 (03:18):
Okay, so we'll kind of we'll get to maybe a
couple of companies later on. Where we stand at the moment,
How should investors be thinking about positioning themselves. Are the
megacaps still what they were? Is it a mid cap market?
Is a small cap market? We didn't think that was
going to happen, but it sounds like, well, sorry, we
thought that was going to happen for the last three years,
but maybe it actually is happening. Now. Where do you
(03:41):
position yourself?
Speaker 2 (03:42):
Yeah, A few things you know on that, I'd say, firstly,
in terms of very broad principles about positioning, I think
diversification is you can't have a state. How important that is,
particularly in a market that looks as concentrated as this one.
You know, last I checked, I think the ten largest
stocks in the US account for about thirty five percent
of the market capitalization of the totally U West market,
(04:04):
which is enormous and much larger than it was, you know,
even during dot Com, and investors rightly point at that
and say, well, is that is that a concern? You know,
it may be, we don't think the market, you know,
is necessarily mispricing AI stocks. We don't on to caution it.
We don't sort of see bubble territory yet. But nonetheless,
a lot of equity portfolios are coming very aliant on
(04:24):
one thing going right. And even if that is a
great basket to have all your eggs in, we don't
really know how it all plays out yet, so I'd
be cautious about, you know, over leveraging to one particular theme.
Looking outside the magnificent seven probably makes make some sense
just from a versification perspective, so we should think about that.
(04:45):
So that sort of ties in diversification being very important.
And also, you know, I think the thing about just
not having big one way bets on geopolitics or on
on investing themes like AI.
Speaker 1 (05:00):
So with that in mind, you do need to be
interested in the big caps, but you also need to
be interested in others. So what about the mid cap
market at the moment.
Speaker 2 (05:10):
Yeah, Look, I think in Australia we're seeing that as
as probably better fodder for investors looking looking for value
the large caps in Australia, and I'm talking here austract.
You know that's probably were well folks, most about times.
Look that they're dominated, of course by the big banks
and two electric center, the miners. The banks. To us,
(05:31):
all the major banks look over valued A and Z.
For quite a while there had looked like reasonable value,
but now that's closed as it's caught up to its peers. CBA,
even after having sold off twenty percent from its recent peak,
still looks very expensive on a PE of twenty five
times and a price to book of almost four times,
which are not multiple's valuation multiples. Investors of historically been
(05:51):
willing to pay for banks, and we just don't necessarily
that they should either. So looking a bit further down
the size spectrum, I think makes a lot of sense.
We can still get a lot of quality businesses but
aren't overpriced banks or miners who you know do also
looking kind of reasonably value, but it's not a lot
of upside there. I think there are some sort of
structural risks that those minus face as well. So generally speaking,
(06:15):
outside the ASEX twenty, we think it's it's it's better
better hunting ground for investors at the moment.
Speaker 1 (06:20):
So there's a lot of options there. So you know,
from twenty one to one hundred or are you thinking
one hundred to two hundred, and let's call those ones
the small caps. Yeah.
Speaker 2 (06:29):
Look, I think most opportunities we're seeing right now are
still in the small caps. So outside the ASEX one hundred,
that end of the market has had a fantastic year.
I think it's the return year to date small ordinaries.
It's something like twenty five percent there thereabouts. In the
ASEX two hundred to be about six percent, So it's
a massive outperformance immediately after a number of years of lagging.
(06:53):
You know, it's a huge performance. Golf opened up between
the small caps and large caps, you know in sort
of late twenty twenty one too, when concerns about higher
inflation and recession drove a lot of investors think away
from that end of the market on you know, safe
haven flight quality sort of style behavior. That's come back
in a big way this year, although I would carveout
(07:14):
that a lot of that is to do with materials,
you know, particular materials, the commodities that matter for that
end of the market, like gold and copper and lithium
and rare earts. But because of that, because it's been
mainly a commodity story for the small caps this year.
It actually means that a lot of the other non
commodities businesses they haven't seen those roaring share price gains,
and that's still offering pretty reasonable value for the most part.
Speaker 1 (07:37):
Okay, with all that in mind, and diversification is king,
you know, keep thinking about meda caps, mid caps, and
small caps. There's a couple on the list that you've
put out in the last week or two which I
think are particularly interesting ones. Domino's Pizza. We hear so
much about it. It contrarian, lackland, contrarian backing, dominates.
Speaker 2 (07:58):
Yeah, why do you like? Its ago wouldn't have been
putting out in the small cap bucket, right?
Speaker 1 (08:02):
But how thick that's true?
Speaker 2 (08:04):
And certainly is you know, at least in the way
it's priced by the market shadow of its former self. Look,
I mean there's a bit going on with Dominoes. I
think the biggest one weighing on at the moment is
the cyclicality, Like the macro is clearly hurting them right now.
We're still recovering from a very very tough period for retailers,
(08:26):
fast food retails, discretion retailer more broadly, with rate cuts
and high inflation, that's affecting our entire fast food quick
service restaurant coverage. You know Colin's Food example, the KFC
operator GUZMANI Gomez here, but also globally the QSR operators
are struggling. Dominoes is no exception to that. We think
(08:46):
that should improve over the next year, as you know,
we continue to see the effects of those rate cuts
and pulling back inflation. It should bode very well. And
on top of that, they've also got the sort of
moider syncratic challenges that they've created for themselves in a
way by over expanding, particularly during COVID, where they probably
misread the durability of you know, staying at home and
eating pizza. When that change, that expanded too broadly and
(09:09):
it became sprawling, their pricing strategy got sort of bungled,
and now they're raining that back in. But what you
have to assume today to get to the current share
price is basically no news stores normal margin expansion. We
think that's very pessimistic, and so the marginal safety for
us is absolutely there right now in Dominoes.
Speaker 1 (09:29):
That means it's very much evaluation story, then, is that right?
Speaker 2 (09:32):
I think that's right. Look it's basically a deep value
stock right now. Not much we think has to go
right in terms of just showing it there is still
growth there, they can get their margin back. Part of
that's can to be cyclical. Part of that's going to
be them actually doing the work when the pricing strategy
to try and rebuild consumer trust in their product. And
at the franchise e level, once a franchise a profitability
comes back, then you can start thinking about the rollout. Right,
(09:54):
you can't roll out stores if you can't encourage franchis
you know, open up a store for you. So those
few things have to go right for them. It's not
going to happen overnight, but that we think is a
credible pathway. They're back to growth for them, back to
margin expansion, and again at these prices, you really don't
have to believe much to make that bet work.
Speaker 1 (10:11):
Another one and we are almost out of time, but
it's very quickly. ADP education a couple of years ago,
you couldn't get enough of it. Everyone loved IDP education
legislative changes, which really it fell out of bed. It's
share price has fallen out of bed. Why do you
like that one?
Speaker 2 (10:24):
It looks similar story in somewhere so Domino as it
wasn't Darling that's now fallen from Grace. I think that
there's a very good structural story there with IDP around
the need for NETO sism migration, particularly you know, student
student visas to help support you know, Australia's tourism exports.
It's a big part of the economy in our big
part of our export balance, some sixty billion dollars a
year I think in Australia is spent on student related
(10:48):
expenditure here. So I don't think that's going to go away.
I don't think Australia should be looking to push that away.
There's obviously the political heat around it at the moment,
but I think, you know, if when we get this
housing issues sort of out, that seems like an obvious
place to be trying to help you drive growth in
Australias expert balance beyond the world of commodities. I think
that's a big part of the story, not just even
(11:09):
in their other markets too, like Canada. So again it's
a short term challenge absolutely around migration. We don't set
asisting forever. They're the highest quality operator in the space
and they should win when this turns around.
Speaker 1 (11:20):
Lachlan, thank you for talking to Fear and Greed.
Speaker 2 (11:22):
Thanks for having me.
Speaker 1 (11:22):
It was morning Start equity market strategist Lachlan Hallaway. Just
a reminder to seek professional advice before making investment decisions.
If you've got something you'd like to know, then send
through your questions on LinkedIn, Instagram, Facebook, Right, Fearinggreed dot
com dot A you. I'm Chanelma and this is Fear
and Greed Q and Day
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