Transcript:

Hi, I’m Ameya Hattangadi, Associate Portfolio Manager at Morningstar Investment Management. Welcome to the Morningstar Market Minute, a video series where we explore markets, the economy, and other notable trends every Friday lunchtime. We’ll discuss key market events, Morningstar’s outlook, and our portfolio positioning.

You may be somewhat surprised by the positive returns across most markets in the first half of this year, especially against a backdrop of the largest upheaval to global trade in over a century, massive shifts in fiscal policy, and a significant reassessment of geopolitical leadership. We certainly were, but that is exactly what transpired.

And markets continue to push higher. Key stock indices like the S&P 500 and NASDAQ hitting all-time highs this week with both indices delivering an above-average return of 13% over the last 12 months. This upward momentum points to improving investor sentiment, suggesting that investors may be overlooking valuations—a key driver of returns, particularly over the short-term—and one that can prove costly if ignored.

Closer to home, Commonwealth Bank (ASX:CBA) continues its gravity-defying ascent, becoming the largest stock on the ASX by market capitalisation, lifting the entire market to new heights. We question how much longer this can continue. While a valuation premium may be justified given its consistent high return on equity, its dominant market position, and robust macroeconomic landscape, it is difficult to justify owning it when it trades at valuations more like a high-growth tech stock.

Looking ahead, we are monitoring some short-term risks. The 90-day deferral on President Trump’s April tariffs is set to expire next week, potentially leading to a flurry of trade deals or further deferrals. Additionally, the “One Big Beautiful Bill”, a sweeping tax and spending package, faces a tight vote in the US House of Representatives. After passing the Senate by a narrow margin, the bill has encountered resistance from some Republican members concerned about its $3.3 trillion addition to the national debt and significant cuts to social safety-net programs, including Medicaid.

As long-term investors, we strive to look through these near-term risks, focusing on the ability of companies we invest in to generate sustainable cashflows over the long-term. We additionally pay close attention to how the market prices these cash flows.

Currently, we see attractive opportunities in emerging markets, particularly Brazil, Korea and select Chinese tech companies like Tencent (HKSE:00700) and Alibaba (HKSE:09988). In developed markets we prefer consumer-facing businesses like Burberry (LSE:BRBY) and Nike (NYSE:NKE) that are currently out of favour with the market. We believe these segments offer an asymmetric return profile characterized by strong upside return potential and limited downside risk due to their healthy fundamentals and attractive valuations.

That’s it for this week. Thank you for watching, and we’ll return next week for another Market Minute.