This podcast is originally produced and published by BFM 89.9 and can be found at https://www.bfm.my/podcast/morning-run/market-watch/us-market-valuations-india-undervalued-market-malaysia-strategy.
The BFM hosts provides a comprehensive overview of global markets and corporate earnings, covering major stock indices’ performance and specific company reports like HP Inc. and Salesforce. Analyst Tony Nash discusses market valuations, highlighting potential overvaluation of US stocks and undervalued markets like Poland and Israel. Discussions on tech giants Nvidia and Apple illuminate trends in the technology and automotive sectors. It also explores Apple’s decision to abandon electric vehicle ambitions, insights on emerging markets like India, and shifts in global supply chains. The segment concludes with an analysis of Salesforce’s earnings report, focusing on revenue growth concerns and the company’s strategic emphasis on AI technology for future profitability amid market changes.
Transcript:
BFM
BFM 89.9. Good morning. It’s seven o’ six a.m. On Thursday the 29 February. You are listening to the morning run. I’m Shazana Mokhtar with Wong Shou Ning and Keith Kam. We are going to start the morning with the recap of how global markets closed overnight.
BFM
Wall street ended lower as investors were looking ahead to a key inflation report that’s due out later this week. The Dow Jones fell 0.1%, the S&P 500 was down 0.2% and the Nasdaq was down 0.6%. Earlier in the day, Asia was pretty much in the red as well. The Nikkei was down 0.1%, Hong Kong’s Hang Seng was down 1.5%. Shanghai’s composite index was down 1.9%, Singapore’s STI was down 0.6% and the FBMKLCI back home it ended lower, 0.9% lower at 1546 points.
BFM
All right, all in the red, surprisingly. But let’s take a look, maybe at some of the headlines coming out of corporate America. We have quite a number of companies reporting earnings with HP Inc. First on our docket, they reported first quarter results that missed estimates and this is really due to the ongoing slump in pc sales. Revenue declined 4% to 13.2 billion U.S. Dollars in the first quarter ended January 31, dismissed estimates of $13.6 billion. Profit, excluding some items, was share in line with Wall Street estimates.
BFM
If you look at different segments after two years of declining revenue in the consumer pc unit, analysts were hoping for a sales increase in the quarter. But instead consumer sales fell 1% to $2.76 billion, while pc revenue dropped by 5% to just above $6 billion. Its printer division revenue was pretty much in line with estimates at $4.38 billion. And that’s down by 5%.
BFM
Okay, so what’s the outlook? The company expects pc sales to increase in 2024. Basically, the new computers are now tied to Microsoft Windows eleven software, and there’s some modest impact from AI ready pcs. But if you look at the pc market right, it’s really going through a major downturn. Some people say it’s the unparalleled in the industry’s recorded history. Holiday shipments last year were the lowest since 2006. So it might be we’ve reached the bottom and then hence it’s going to be up from now. But very quickly, does a street like this name, what do they think? The answer is not really because there’s just eight buys, eight holes, three sells. Consensus price for the stock, $33.27. It was down eleven cents to twenty eight dollars and seventy two cents.
BFM
All right, we are going to take a look at more earnings, but let’s first take some discussion on what’s moving markets. We do have on the line with us Tony Nash, the CEO for Complete Intelligence. Tony, good morning. Thanks very much for joining us. The S&P 500 forward PE ratio has risen above 20 times for the first time in two years. Based on this, do you think us stocks are overvalued, as some analysts believe?
Tony Nash
Yeah, I think it’s possible, but we have to look at some of those stocks that are hitting those high levels. So if you look at Nvidia, which is a stock that everyone loves to talk about, Nvidia is contributing 23% of all of the S&P 500 earnings right now, all the earnings growth. So this is one that people love to point to and say, hey, it’s overvalued. But actually you have to pull back and look at the whole market and go, this one stock is actually propping up. We’ve all seen that meme where there’s this house falling over and there’s a log holding the house and fall on its own. Right? That’s Nvidia right now and maybe a handful of other stocks. So when we look at something like Warner Brothers, which is an old media stock, it’s got a massive PE right now. And that’s not technology, it’s just a firm specific valuation. So is it overvalued? Probably, possibly. But I think that’s a function of both earnings growth expectations and interest rate expectations. So there are a number of people here in the states who still believe the Fed is going to cut rates, and they’re factoring that into their equity valuations when those expectations keep getting pushed back and back and back.
Tony Nash
So at some point those rate expectations will catch up with the valuations and the pes. I think it’s also necessary to look at global forward pes. Okay, so the US is definitely in a weird place at, say, 21 times earnings, but if you look at, say, Denmark and India, they’re hitting 25. Those are two markets that are very highly valued. So when we look at the US, because of the strong dollar, we have a lot of capital being attracted to the US right now because of the strong dollar and because of the higher for longer narrative out of the Fed, those markets, they’re attracting some capital, but especially a market like Denmark. I’d be really concerned of the overall pes in a place like Denmark. And then finally, if we look at Malaysia, Malaysia has 15 times PE right now, so it’s not nearly as stretched as the US is right now.
BFM
Okay, so you highlighted us. Thank you very much, Tony, because we are usually nervous, but what other markets would you pay attention to which you think are, well, cheaply valued, undervalued.
Tony Nash
Cheaply valued, undervalued. Well, let me look at this list. Well, you’ve got things like, say, Poland. Israel is undervalued. Poland is undervalued. South Africa might be, Brazil might be. I mean, there are different types of risk in these markets, right? And we look at know people have really fled China as an investment market right now, really because of economic and policy risk in China. So if you look strictly at PE, China looks very undervalued, but you have to look at the other risks around that market to understand what’s loaded into that PE based valuation.
BFM
Tony, can I pick up on something you said about Nvidia just now? Its spectacular run is being compared to what we’re seeing with Cisco during the.com bubble. Is this a valid comparison and where do you think they are similar and different?
Tony Nash
Yes, I love that comparison. Because when you mention that comparison to anybody, anybody who watches markets, nobody is just kind of met about it. Right?
Tony Nash
Everyone either hates it or they love it. So I’m old enough to remember the Cisco run up. And so personally, I have some selection bias and I see a lot of parallels, but in reality, it’s both yes and no. So they’re both selling infrastructure to kind of the current thing. Right? So for Cisco, it was the first generation of the Internet. For Nvidia, it’s AI. Nvidia is spinning off much more cash as a percentage of overall market earnings than Cisco did back in the day. So it seems to be on much more solid footing than Cisco was. We also have Nvidia selling into the likes of Google and Microsoft. These are Facebook and so on. These are very large companies with very solid cash streams, whereas Cisco was selling to a lot of people and a lot of startups that really had money pulled when that Internet bubble. So I think there is some merit to that comparison. I think it’s an interesting one, and it’s one that I gravitate to because I live through that first bubble. But I think you can see both sides of it and definitely justify both sides.
BFM
Tony, can we take a look at recent news coming out of Apple? They dropped their decade long aspiration to enter the EV space. Is this a sign that the EV market is already reaching a peak in terms of competitor space as well as returns on investment?
Tony Nash
Yeah, I think for EVs, we’ve had a pretty long hype cycle for probably the past ten years, and Apple’s been talking about developing EVs for that long. And when we have a lot of the Chinese EV makers who are really making headway and they do amazing products, and in the US, you have Tesla that has huge market share, and we’ve got European brands and legacy brands and us legacy brands and Japanese legacy brands, all with EVs. I think from Apple’s perspective, it’s looking at that market and going, are we really going to bring something to the market that’s not there? And they do wearables, they do mobiles, they do software, they do other stuff. And I think from the board perspective and from the operating management perspective, they’re looking at it. There’s a huge capital expenditure risk of building automotive plants. There’s a huge supply chain on the selling end that needs to be built up. And then there’s a massive amount of marketing to get into that crowded space. So for them, I think it just makes a lot of sense to pull the plug. And I’ve been waiting for this for a long time, actually.
BFM
Okay, Tony, we’ve talked about China. We talked about Malaysia, some markets which are very unknown to us, like Poland and Denmark. But what about India? What are your thoughts on this market?
Tony Nash
Yeah, so we saw some announcements over the past couple of weeks of people moving manufacturing to India.
Tony Nash
And so I think India can definitely draw investment away from China in terms of manufacturing and supply chain investment. But I think that, say, China plus x strategy, whether it’s one, two, three, or multiple countries, that’s not something that people, major companies can execute right away. It’s something that takes time. And the problem that India has is Malaysia, Thailand, Vietnam are very, very good at what they do in terms of manufacturing. And so those are the competitors for India. So India has, say, very low labor wages, but the infrastructure and the services surrounding manufacturing aren’t as well built out as they are in, say, Malaysia, Thailand, Vietnam. So I do believe that India will provide benefit for very labor intensive, very scale oriented manufacturing. But again, for those guys, it’s really hard to just turn the tap on in India. They have to make a major investment, run it in parallel, and then maybe turn the tap on full. So I know India has been building this for a long time. Made in India started, what, twelve years ago or something. Right? So they’ve been pushing it for a long, long time, but there’s a whole ecosystem that has to be built out and I know they’ve made headway there, but it’s just not as built out as say Malaysia, Thailand, Vietnam.
BFM
Tony, thanks as always for the chat. That was Tony Nash, CEO of Complete Intelligence, giving us his take on some of the trends that he sees moving markets in the days and weeks ahead. We have a little bit of time. Perhaps we can take a look at another earnings report that came out overnight. And that is Salesforce. Salesforce shares fell by 4% after it provided an outlook for sales that fell short of estimates, although results for fourth quarter surpassed estimates suggesting that new AI features for its software have yet to boost growth.
BFM
For its 2025 fiscal year, Salesforce expects adjusted earnings to be between nine dollars. Sixty eight to nine dollars. Seventy six per share revenue is expected to increase by about 9%, up to $38 billion. And analysts had expected $38.6 billion in revenue previously.
BFM
Okay, so what they’ve done is they’ve cut costs just like any other tech company and that has helped profitability in the past year. But now investors are saying where’s the profit really going to come from? Where’s the growth coming from? Especially since a lot of companies are tightening their respective spending on software. So they are, of course just like anyone else, investing heavily into AI. But that monetization path isn’t so smooth, isn’t so fast, right? So in the meantime, I think people were disappointed with their numbers. They however, have launched a copilot feature that uses generative AI to answers questions and to create new content. Now, does the street like this name? Do you remember this? Was a real darling during the pandemic? Still a darling actually if you ask me. 42 buys, 13 holes, just one sell consensus tile price $304.13 last and price $299.77 up. Love the ticker on Bloomberg. CRM says it all right.
BFM
Indeed. 07:19 a.m. We’re going to head into some messages and when we come back we’ll continue looking at the top stories in the newspapers and portals this morning. Stay tuned. BFM 89.9.