Devon Funds Morning Note - 19 August 2025

Tuesday 19th August 2025

Cashing in the CHIPS

Global

It was a fairly quiet session overnight with little in the way of major economic releases or large-cap earnings releases. Releases from several big retail names are due in the coming days, and investors are also awaiting the commencement of the annual central bank symposium, which kicks off in Jackson Hole, Wyoming, on Thursday. Jerome Powell’s speech will be of particular interest. He is expected to unveil the Fed’s new policy framework to achieve its dual inflation and employment goals. Comments on near term policy are also likely to come up. As things stand, markets are pricing in a ~80% probability of a Fed rate cut next month.

The Dow Jones eased 0.1%, while the S&P 500 and Nasdaq both closed fairly flat. Trade developments, inflation and other economic data will be amongst the key discussion items in Wyoming, but geopolitics may also feature. Trump hosted Ukrainian President Zelensky in the Oval Office, who seemed quick to front-foot criticism from Trump/Vance at the last meeting - he said “thank you” six times in the first few minutes of the meeting.

The meeting was a lot more convivial, with Trump making assurances around providing security guarantees. Trump is trying to set up a tripartite meeting involving Putin and is positioning himself as the great peace broker. He went on to say, “In the six wars that I have settled, I haven’t had a ceasefire…if we can do … great, and if we don’t do a ceasefire, because many other points were given to us, many, many points were given to us, great points.” Trump continues to be angling for possible exchanges of territory. It remains to be seen whether that will be achievable.

The ending of “six wars” is an interesting comment and is likely angled at the diplomacy involved in conflicts between Israel/Iran, Congo/Rwanda, Cambodia/ Thailand, India/Pakistan, Serbia/ Kosovo and Egypt/Ethiopia. Missing from the list are Israel/Hamas and the Ukrainian conflict, which Trump campaigned that he would end within 24 hours of taking office.

The White House appears to have a land grab of its own underway in the technology sector. Following negotiations for a 15% cut in revenues from Nvidia and AMD’s sales to Europe, there have been further reports on the administration’s discussions regarding Intel. The government is in discussions to take a stake of about 10% in the chipmaker by converting some or all of the company's grants from the US CHIPS and Science Act into equity. The federal government's potential investment would be worth roughly US$10 billion, and could make the Federal government the company's largest shareholder.

A White House official also floated the possibility that the administration could convert other Chips Act awards into equity stakes. Other companies that have received grants under the Act include Taiwan Semiconductor, Samsung and Micron. If progressing further this would mark a continuation of efforts by the Trump administration to increase its role in strategic sectors. The government has already taken a "golden share" in United States Steel Corp. and a preferred equity stake in rare earths company MP Materials Corp.

Taking up government equity investment “offers” to date has also been because something has been received on the other side. Intel could certainly benefit from some assistance in expanding its footprint, particularly in AI, where it has lagged behind rivals such as Nvidia and AMD. Donald Trump himself has meanwhile pivoted, turning from the aggressor to pacifier in his tone against Intel’s CEO. After calling for the sacking of Lip-Bu Tan due to him being “highly conflicted” given his involvement with China, the President posted on social media that he had a “very interesting” meeting with the billionaire executive. He added, “his success and rise is an amazing story.”

There wasn’t a lot of large cap news, but there were a few deals announced further down the boards. Shares of social club network Soho House soared 15% after announcing plans to go private as part of a US$2.7 billion deal directed by MCR Hotels. Shares of bitcoin miner and data centre company TeraWulf rose 5% after Google upped its stake to support its data centre campus expansion in New York. A US$1.4 billion investment will raise Google’s stake to 14% from 8%.

Across the Atlantic, the STOXX 50 eased 0.3%. Novo Nordisk surged 6.6% as the Danish pharmaceutical giant’s blockbuster weight-loss drug Wegovy won US regulatory approval to treat a serious liver disease. The FDA has approved the use of the drug to treat metabolic dysfunction-associated steatohepatitis, or “MASH,” in adults with moderate-to-advanced liver fibrosis. MASH represents a significant health burden, with around 22 million people living with it in the US.

Danish wind turbine manufacturer Vestas Wind was also blowing higher on developments in the US. The shares soared 15% as the IRS issued new rules around tax credits for clean energy projects. Developers will only be able to qualify once physical work on the project begins as opposed to a milestone of paying at least 5% of project costs and demonstrating that some form of work on the project was ongoing.

The FTSE 100 in the UK rose 0.2%. Homebuilders dipped though on reports that the government is considering a new tax on sales of homes worth more than £500,000.

In Asia markets were mostly higher. Japan’s Nikkei rose 0.8% to a new all-time high. Suzuki Motor soared 10%. The CSI300 in China rallied 0.9%.

It was fascinating to read about the “World Humanoid Robot Games” which has just wrapped up in Beijing. There were 280 teams from 16 countries, and the events were diverse, ranging from track and field events such as the 400-metre and 1500-metre races and long jump, martial arts and a soccer tournament. There were also “dance battles.” Robots put job skills to the test, showcasing their abilities as clerks, factory workers, and hotel staff.

For the record, Hangzhou-based Unitree delivered a Usain Bolt like sweep, winning 11 medals, including golds in the 400m and 1500m (with record times for a humanoid of 1min 28 secs and 6mins 34 secs, respectively), 100m hurdles and 4x100 relay. Tesla’s Optimus has some stiff competition it seems.

New Zealand

The NZX 50 rose 0.63% to 12,970. Fisher & Paykel Healthcare added 0.1%, and Infratil rose 2.2%. The reaction to the three big results (see yesterday’s note) was positive. A2 Milk rallied 2.6% on its results, including a declaration of a special dividend and supply chain developments. Freightways rose 1.6% on the back of a resilient result considering the state of the economy. Contact Energy rose 1.3% following its numbers.

There was some notable news further down the boards. Mānuka honey company Comvita received a takeover bid from Florenz, a subsidiary of investment company Masthead. If successful, shareholders will receive 80 cents per share, a premium of 67% to Comvita’s closing share price on Friday. The shares soared 58%. Michael Hill International rose 1.1% after it announced the appointment of a new CEO.

On the data side, our manufacturing sector may be expanding, but the Services Sector is still in the doldrums – but not as deeply in the doldrums as it was last month. The headline print for the PSI from BNZ-Business NZ (their report was titled “Treading Water”) was 48.9, up 1.3 points on the reading for June. It is still well below the long-term average of 52.9. This survey bottomed out in May at 44.3, but it is now 17 months since the survey indicated that the services sector was expanding. New orders were flat at 50, and employment was 47.1 – meaning we have seen 20 consecutive months of contraction. As noted in the report, New Zealand’s largest employer, the service sector, has a major bearing on the broader labour market.

We are still lagging behind global comparatives, the JP Morgan Global PSI is at 53.4. Taking some positives, four of the five PSI subindices in NZ moved in “the right direction” in July. The comment that “becoming less negative is often the first step to being outright positive” is a nice, cheery way of looking at it.

This morning, Mercury NZ has released full-year results with earnings impacted by tough generating conditions faced by the rest of the sector. Total generation volume fell 10% to 7,906GWh. Hydro generation at Waikato was the fourth lowest since 1980. Wind generation was 6% lower, and geothermal generation was 2% lower. Earnings (EBITDAF) were 10% lower at $786 million. The result was slightly better than expected. Management reaffirmed plans around renewable energy with 1.1TWh of new renewables under construction and plans to deliver 3.5TWh over the next five years. Upcoming upgrades to several Hydro Stations are believed to be New Zealand’s largest hydro reinvestment programme to date, at $550 million and are expected to increase capacity by 58MW and generation by 87GWh. Full-year dividend is up 3%, and the company is guiding for FY26 earnings of $1 billion on higher hydro generation.

Elsewhere, Synlait has said that it is in discussions with a party with respect to its North Island assets, however, the discussions are “incomplete” with no binding terms agreed or certainty that a transaction will occur.

Australia

The Australian market hit another record high, with the ASX 200 rising 0.2% to 8,959. Financials were strong, with NAB leading the way with a 2.7% gain following its quarterly result. Telecoms and technology were higher. Materials were mostly softer. BHP dipped 1.2% and Rio was 1.5% lower.

Steel producer Bluescope fell 3% on its results. Construction company Lendlease rose 6.7%, haulage company Aurizon added 1.8% and outdoor advertising company oOh!media fell 10% on their respective numbers. Real estate portal REA jumped 4.5% after appointing the head of rival Car Group as its CEO.

This morning, BHP has reported an 8% decline in full-year revenues to US$51.3b. Underlying earnings fell 26% to US$10.2 billion. Weaker prices for iron ore and coal (and better copper prices) were the major factors. The miner has cut dividends to the weakest distribution in absolute terms in eight years.

Woodside Energy has delivered a 24% fall in first-half net underlying profit to US$1.25 billion. Again, weaker prices were a primary driver, and Woodside has cut its first-half dividend to US53 cents per share, down from 69 cents a year ago.

CSL has delivered a 14% increase in full-year net underlying profit to US$3.3 billion, which is at the top end of its forecast range. Revenues rose 5% to US$15.6b. The biotech company has acknowledged a challenging backdrop of geopolitics and competitive pressures. The company is cutting 15% of its staff globally as part of a restructure aimed at delivering annual cost savings of up to US$550 million by FY28. The rationalisation will see the vaccines business, CSL Seqirus, spun off into a separate ASX-listed company in FY26. CSL is also cutting research and development spending, closing 7% of its blood plasma collection centres in the US. CSL will also launch a US$750 million share buyback.

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