Australian investors could find promising opportunities in the US market as its economy, markets and quality companies demonstrate greater resilience than often acknowledged.
Global X ETFs head of Investment Strategy Scott Helfstein emphasised that despite concerns about economic slowdown and persistent inflation, innovative companies continued to excel.
“What really matters are the three ‘Ls’ – labour, leverage and liquidity – all of which are painting a positive picture. Consequently, the Fed is sitting back in comparison to the previous three interest rate cutting cycles where it seemed they couldn’t cut fast enough,” Helfstein said.
“The Fed’s 2% inflation target is becoming less credible the longer they maintain their stance, add in encouraging economic data points, stock market strength and the US election in November, I do not expect a US rate cut until at least December 2024.”
Fourth great innovation boom
Economic stability is translating to corporate success, with S&P 500 companies achieving profit margins above 12% for 11 consecutive quarters. Remarkably, the margin expansion in the last three to five years matches that seen over the past 75 years.
Helfstein attributes these impressive margins to corporate spending and reinvestment, particularly in automation and digitalisation, which are key components of structural megatrends like artificial intelligence (AI).
“With the awakening of AI, we are living through the fourth great innovation boom and it’s being driven by corporate America," Helfstein said.
"Although it may be tempting to compare this market to that of the dotcom era, I’d highlight that the dotcom bubble was exorbitant while the AI rally has been largely rational with lower price-to-forward multiples and performance metrics aligned with quality investing.
“The real place we should be drawing a parallel between the dotcom and AI phenomena is that both technologies have and will fundamentally change the world as we know it. So, when people ask me whether they have missed the AI opportunity, I say, ‘sure you may have missed Nvidia, but the ship has far from sailed’.
“The internet absolutely revolutionised every facet of life, it just took an additional 15 years than when the dotcom bubble burst because there was more groundwork to be done before it was viable and I expect the same to be true of AI.”
AI is driving capital expenditure and subsequent growth in companies involved directly in its development and adoption, ensuring continued performance in sectors such as semiconductors and cloud computing.
Helfstein also identified adjacent industries poised to benefit from AI expansion, such as nuclear energy. He notes Amazon’s purchase of a datacentre adjacent to a small modular reactor (SMR) as a significant development.
“More AI equals more computing power, equals more energy – it’s a simple equation really.
"Nuclear energy is coming online in the US while Japan is turning their reactors back on and major European economies are back under pressure to use nuclear as sanctions on Russian commodities squeeze supply. All things indeed being equal, demand for uranium and nuclear energy will rise alongside AI.
“Ultimately, these thematics can be difficult to access for Australian investors because they are US-centric. Thematic ETFs provide local investors an accessible route to a wide world of opportunities.”
Global X offers 38 ETFs in Australia, including 11 under the thematic umbrella, such as the newly launched Global X Artificial Intelligence ETF (ASX: GXAI) and Global X US Infrastructure Development ETF (ASX: PAVE).