What will be of FY2018?
With the 2018 financial year underway, it’s worth examining the forces that could determine whether the Australian stock market repeats its circa 13% return of 2017.
For those with less patience the executive summary goes something like this; valuations remain relatively stretched across the broader universe of high quality companies – typically this limits future returns – and this is occurring at a time when the prospects for many domestically-focused businesses give cause to be less sanguine. Rising non-discretionary household costs combined with weak wages growth leaves less discretionary spending capacity. As such, discretionary retailers and product manufacturers are vulnerable to weakening demand.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Marcus
:
hi there Roger,
Well, before 2018, we still have our last 2 economic quarters around the world that should show and tell IMHO. To top that up, the US Debit Ceiling is just around the corner around October and I do believe that Wall st. will hijack the emotions of the US Congress and have many out there begging for a solution and to an extension of their debt as markets around the world will drop sharply. Perhaps a playback of 2011’s?
We all know the health of our OZ land economy…. it’s pretty much overblown in too much debt. We are what I call “the little americans” just before 2008/2009. The difference here is that we’ve got a tiny economy and mums and dads will have to pay the price to rescue the internal economy when this blows in my honest opinion.
Bail outs, Bail ins, and perhaps a “borrow” of our only liability – Superannuation that is seating around what ? $1.9 trillion now ?
I hope the government does not strike deals like Greece have… selling their icons for the sake of a bail out and in form of austerity measures….. after all, we have recently priced our Great Barrier Reef for about A$56 billion dollars ? lol Outrageous balony… there is no price for such a one of the 7 natural wonders in the world….
So, to me, 2018 will come with a bang and many many surprises…. and I do think the Chinese will be the ones popping our Australian Housing Bubble.
All the best
cheers
T10
andrew ronan
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Hi Roger, we live in North Queensland and we are already a few years into our property market decline due to mining downturn etc, And what I have noticed is that when you go to a mortgagee auction these days, nothing much ever sells and they seem to just put properties back on the market after a failed auction and advertise at obviously well above market prices and the properties just sit there in limbo, so will the banks or mortgage insurers eventually become the biggest landlords in the country when the property downturn gets serious down south. And who is absorbing this loss? Seems like debt just doesn’t matter anymore, very strange.
Roger Montgomery
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Hi Andrew, that’s an interesting one – vendors in denial. I think it’s not unreasonable to expect vendors to avoiding dumping stock, remembering that the marginal buyer or seller sets the valuation for everyone else. presumably if buyers go on strike mortgagee in possession sales increase in frequency and if the vendor doesn’t meet the market they become a larger hoklder/landlord, as you suggest. yes this could be an issue for some regional banks.
peter latham
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Andrew, another interesting thing I’ve noticed that in regional NSW where property is much more affordable, that the rental market dynamics has also changed. With fairly low interest rates and relatively affordable (extremely affordable compared to Sydney, Melbourne and Canberra) property prices, the older and smaller 3BR homes in the $200-250K range are selling relatively quickly. Presumeably these are owner/occupiers where loan repayments would equal the cost of renting and so this makes good sense. The newer higher priced homes are not only selling to owner occupiers but are also keenly sought to rent out to Gen Ys who “need” a new, modern and spacious home to share with others. This then creates an excess in the rental market of older properties. Even though they are well maintained and cheaper to rent, they are left sitting on the Real estate agent’s books, vacant and bringing in no return for their owners for a considerable number of months. This gap shows no signs of closing shortly, and raises the question given low inflation, little capital gain, and lack of income, if lower priced rental property in regional NSW areas is really a viable investment anymore ?