Generate’s Investment Specialist Greg Smith was on ZB with Mike Hosking this morning, talking about signs of life in the Kiwi manufacturing sector, which appears to be turning around. He also discussed why Warren Buffett, who doesn’t seem too concerned about a bubble in AI, has been buying up shares in Alphabet heavily over the last quarter. Greg further explained why a mixed bag of data out of China is not necessarily a cause for serious concern.
Listen here or read the full transcript below
From Generate, Greg Smith, good morning.
Good morning to you.
Hey, some life in manufacturing?
Absolutely. We've got some positive news. So this is the BNZ, New Zealand PMI Report. It was titled Signs of Life. So that's a bit of a giveaway. Nudged up to 51.4 from 50.1 in September. So it's moving in the right way and further into the expansionary territory. It's actually been there for four consecutive months. That was good.
And the gains we saw were in places you'd expect when we're getting a cyclical recovery. So it was new orders production. Production index it was up to 52 and that's actually not far below the long term average. New orders, highest since August 2022, Mike. So there was up at 54.9. So it's a big bounce and it's going well and it's been 3 over the last four months where it's been above its long term average.
So we're starting to see momentum should actually mean that a manufacturing sector is going to be a help rather than hindrance to GDP. So it's so that's good. In terms of the drivers particularly a combination of factors potentially – we’ve had increases in residential building consents. Of course we've had easier monetary policies, a falling OCR and a weaker NZD/AUD exchange rates probably helping as well.
Before we pop the champagne corks, employment that's still lagging at 48.1. Six consecutive months it's been in contractionary territory. So there is still shedding of labour in the sector. But I suppose labour is the one of the last things to turn around, or employment is anyway. So that should improve at some point. But good news still shouldn't turn the RBNZ from cutting into this month.
Good stuff, Warren Buffett, 4 billion plus on Alphabet. What do we read into there?
So maybe all the talk about AI stocks being in a bubble was it's all sort of fake news. So one of the most successful investors in the world isn't too concerned. This was his end-of-quarter portfolio snapshot.
He picked up 17.8 million Class A shares of Google's parent Alphabet. That's valued around about 4.9 billion, makes it one of his largest holdings. Sent the stock higher after hours. No surprise there. But yeah, it's interesting isn't it because it's a little bit out of his wheelhouse. I mean he has got huge holding in Apple but he's actually been selling that down, that's valued at around about 65 billion.
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But he considers it to be a consumer products company rather than a tech company. And this isn't exactly the out of favour stock, is it? When you look at the Alphabet, shares is up 45% year to date. Also back in 2019, he sat alongside Charlie Munger at the annual meeting and said that they regretted not buying Alphabet earlier. It was $60.00 at the time. It's nearly five times that, 286 a share. Maybe someone else is driving this. Of course he's handing over the reins. He did his last Thanksgiving letter as CEO recently. Maybe it's also an acknowledgement that, not all companies will be winners now some will do very well. And we've talked about Alphabet’s recent results. They're doing well in cloud, doing well in ad revenue, in search.
AI is actually helping rather than eating into the revenues. And maybe also Mike, it's just the fact that he likes Alphabet has heaps of cash. About $100 billion at last count.
China, talk to me. We got any good news or not?
It's a bit mixed. So yeah, data there shows it needs a bit more work in terms of the turnaround. So fixed asset investment that was down 1.7% in the first 10 months of the year. For October, it was down 11%. Industrial production that did climb 4.9% but the smallest gain since the start of the year. Retail sales better than expected, up 2.9%. Urban unemployment, the 5.1% that was reasonable. In new homes as though unchanged in September. One big increase we did see in China.
Electricity production up 8% from a year ago. Perhaps AI has got something to do with it. But I think overall Mike, yeah, it just shows that the more needs to be done potentially on stimulus, whether they have put 1 trillion Yuan in since September. So that's hasn't fed through just yet. Obviously they've been working to tackle over-capacity, but maybe that's impacted the investment pipeline. Maybe it's the holiday distortions hopefully. But another thing you mentioned tariffs, of course, they only just agreed to a deal of sorts with the US. So maybe that'll provide a bit of a tailwind when going forward. But yeah, they might need a bit more stimulus and perhaps reforms at their 5% growth target sustainably.
What are the numbers?
So we're a bit weaker on Friday. The Dow Jones was down .7 percent 47147. The S&P 500 was relatively flat, down .05 percent 6734. And the Nasdaq that was positive, up .1 percent 22900. Investors will probably like that news around Alphabet tonight. If you look at the FTSE that was down 1.1%. Nikkei down 1.8%, ASX 200 across the Tasman down 1.4 percent 8634. In NZX 50 we were down just under one percent 13464.
Gold down 87 dollars, 4064 an ounce. Oil that was on the up, up $1.40, 60.09 for WTI. And the currency has clearly made a little bit of comeback. Actually up half percent against the US 56.8. 86.9 against Aussie that was higher as well against the pound 43.2. Japanese yen 87.8.
This week Mike plenty going on as usual, data on the services sector, food production, producer prices, trade data. Another dairy auction. We’ve got results from Napier ports, Oceana healthcare. AGMs out of Precinct and A2 milk. U.S. data that's back. We've got housing starts, building permits, existing home sales, Fed minutes, it's RBA minutes and third quarter GDP out of Japan. And we're going to get a really good read on the retail sector in the US, numbers from Home Depot, Target, Walmart, and the big one, NVIDIA. Will the AI darling deliver on expectations once again? Let's see.
Fantastic. Go well Greg Smith, out of Generate Wealth and KiwiSaver specialists.