Martin Conlon, head of Australian equities at Schroders, is a contrarian investor adhering to Warren Buffett’s principle: only buy stocks you’d happily own for five years, even if the market closed. He observes many investors might find their portfolios uncomfortably exposed, contending equity market pricing is less efficient amidst a focus on earnings momentum.
Conlon has long voiced scepticism regarding extensive debt in the Australian housing sector, which he believes has masked stagnant productivity. He suggests Australia’s 30-year housing super cycle has concluded, driven by rising inflation, higher interest rates, and recent federal budget tax changes. With 60 per cent of the local sharemarket in banks and resources, he anticipates significant pressure on bank stocks due to home loan exposure. House price declines, potentially reaching 10 per cent in Sydney and Melbourne, could trigger more widespread impacts than commonly expected.
Beyond housing, Conlon highlights concerns around resource companies. Despite a modest 3.2 per cent rise for the ASX 200 this year, mining giants BHP and Rio Tinto have climbed significantly. This growth, largely driven by overseas investors, reflects a substantial bet on their copper assets benefiting from the artificial intelligence (AI) investment boom. Conlon, however, questions the underlying maths, noting data centre demand constitutes only 1-2 per cent of total copper demand. He cautions investors may have inflated these stocks to levels as speculative as other AI-related assets, potentially leading to “second- and third-order impact” if the AI bubble pops.
Conlon also points to a deceptive earnings boom on Wall Street from AI infrastructure, where rising costs are often capitalised, obscuring true profit. Consequently, he is favouring “bombed-out healthcare stocks” like CSL and Cochlear, aligning with Buffett’s criteria. He warns that simultaneous deflation of housing and AI bubbles could spark a turbulent period for local investors.
