Market outlook has ‘more risks than normal’: Argo

The listed investment company says there are opportunities in the energy transition. It is facing shareholder concerns about the tenure of its chairman and long-term performance.

The outlook is “heavily contingent” on governments and central banks walking a “very fine line” not to fuel inflation or lead economies into recession, Argo Investments chairman Russell Higgins has warned.

Argo, with some $7bn in funds under management, posted an 80 per cent rise in profits to $312.9m for the financial year to June 30 fuelled by higher dividends from mining giants BHP and Rio Tinto, as well as benefiting from M&A activity.

But Mr Higgins said the withdrawal of government and central bank stimulus and the Russian invasion of Ukraine had created a market outlook with “more risks than normal”.

Argo has made few changes to its investment portfolio, however, notably accepting an offer from Canadian aquaculture company Cooke for its stake in Tasmanian salmon producer Tassal. The company has told investors it saw an opportunity in decarbonisation and was invested in lithium producer IGO and Lynas Rare Earths, both of which have performed well.

The fund manager’s largest holdings, however, are Macquarie, BHP, CSL, the Commonwealth Bank, Wesfarmers, Rio, ANZ, Telstra, Westpac and the National Australia Bank.

But Argo, one of the country’s oldest and largest listed investment companies, continues to trade at a discount to its net tangible assets, with a market capitalisation of $6.6bn.

On Monday, shares closed 8c higher at $8.73.

It has also attracted the ire of the Australian Shareholders’ Association, which in a note flagged its concerns with Mr Higgins’ 12 year tenure on the board. The association has also warned another director, Chris Cuffe, had a high workload in addition to his position on the Argo board.

“Argo’s most recent 1-year NTA performance against the S&P/ASX 200 Accumulation Index benchmark is positive however Argo’s long term … performance continues to be negative against the Argo nominated benchmark,” the association said.

Mr Higgins’ comments, made at Argo’s annual meeting on Monday, were echoed by the company’s managing director Jason Beddow, who told investors that markets were currently “extremely sensitive to macroeconomic and short term factors”.

“This uncertainty is adding to the increasing fear that, if inflation remains elevated, the prospect of a ‘higher for longer’ interest rate environment increases and the likelihood of a ‘soft landing’ for the global economy decreases,” Mr Beddow said.

“In this scenario, central banks will have to go harder to slow demand, creating further headwinds for equities.”

“In comparison to most other countries, Australia is faring relatively well,” Mr Beddow added.

“However, as we enter 2023, interest rate rises will likely have a slowing impact on the economy and we may experience shockwaves from any number of global developments.

“We believe corporate Australia is in relatively good health and will be able to absorb a lot of this uncertainty. In addition, company balance sheets are strong, and unemployment remains low.”