Oil, AI, and Market Outlook (with Heidi Stroud Watts)

June Beloo, co-founder and lead portfolio manager at 10CAP, discusses market resilience despite geopolitical tensions, expecting a risk rally if oil prices fall. She highlights inflationary pressures from AI infrastructure investment and prefers 'picks and shovels' plays in the AI supply chain, particularly in Australian mining and engineering. She sees China's consumer sector stabilizing but remains cautious on global consumer spending due to inflation.

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10CAP 2.5
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June Beloo 7.5

Oil, AI, and Market Outlook (with Heidi Stroud Watts)

metals

We see a lot of them right so we see all the mineral whether it's coppers aluminium and then the whole whole supply chain... we do think that's the next wave of growth

ndx

Beloo is positive on AI thematic and 'picks and shovels' plays, but notes risk of lower returns for AI leaders over the longer period, suggesting cautious upward view for the broader tech index.

wti

Beloo states that if a resolution is reached, oil prices will fall, but she personally believes oil might remain elevated due to backlog and persistent price pressures, implying a cautious downward view in the short term.

Asks about low volatility in international stocks despite geopolitical uncertainty.

Heidi Stroud Watts
June Beloo

The market is trading with inflationary expectations; as long as oil prices fall, the market will move forward regardless of geopolitical outcomes.

A risk rally is expected across the board once a resolution is reached, even though the market has already been strong.
Questions if the market is ignoring details like tolls on vessels, which could delay oil price normalization.

Heidi Stroud Watts
June Beloo

The market wants ships to go through the strait; short-term impact of a toll is not significant, but oil prices may remain elevated due to backlog and persistent price pressures from manufacturers and consumer companies.

Price increases already implemented by companies will take time to come through, leading to real economic consequences.
Asks about the inflationary risk of AI infrastructure investment and whether diversification is needed given the concentrated rally.

Heidi Stroud Watts
June Beloo

AI thematic is real; demand for commodities and energy from hyperscaler and data center investment is guaranteed. Prefers 'picks and shovels' plays in the AI supply chain over AI leaders due to risk of lower long-term returns.

Sees opportunities in Australian mining (copper, aluminum) and engineering companies supplying data centers, many of which are still small and poised for growth.
Asks about China market preferences.

Heidi Stroud Watts
June Beloo

Likes areas where the Chinese government is focusing: technology, AI, and electrification. Consumer sector is stabilizing, with housing not as bad as before and consumers traveling and investing in the stock market.

Expects consumer to come back strongly in China after a couple of quarters of real income growth, but globally consumer spending is a tough spot due to inflationary pressure from commodities and industrial businesses.
Asks about the impact of recent tax changes in the Australian budget on risk assets.

Heidi Stroud Watts
June Beloo

Tax changes will slow housing turnover and likely cause a 5% fall in house prices over 12 months, impacting consumer confidence. However, the impact on equities is not meaningful as growth investors focus on company growth, not tax considerations.

Politics may shift, potentially reversing the changes.

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