Don’t Let Australian Stock Opportunities Pass You By

If you want another reason why you should be long Australian stocks and real estate, how does a coming ‘wall’ of Asian money sound? That’s what Westpac’s Rob Whitfield expects. He’s ‘Australias most senior institutional banker’, according to the Australian Financial Review.

While everyone else is worrying about the price of iron ore and oil and the latest waffle about what the Federal Reserve did and didn’t say, I suggest you watch where the money is flowing.

According to the AFR, Mr Whitfield has been on a visit to Asia with Westpac’s CEO Brian Hartzer. Here’s why it matters to your investment strategy…

He [Rob Whitfield] said discussions last week with CEOs and CFOs from many multinationals based in Asia and Asian companies revealed broad-based demand for Australia equities, property and tourism, agriculture and healthcare assets from a range of Asian countries would continue.’

The two men also think that Japan’s decision to double the supply of yen under its QE program is going to send a ‘disproportionate’ share of that liquidity in Australia’s direction.

Make no mistake, a global hunt for yield is on. Over in the US, the Wisdom Tree Japan SmallCap Dividend Fund (DFJ) hit 52 week highs this week. My colleagues over at the Stansberry Digest report that European equity dividend funds have seen their largest inflows since 2008. That figure is US$10.2 billion in three months. It was US$7.7 billion for the entire year of 2014.

I’m sure that’s helping the banks along here. Late last year, we told subscribers of Cycles, Trends & Forecasts to pick up some CBA stock when it was trading around $77. The price went over $95 this week. With the benefit of hindsight, we would have done well to add some of the other banks as well. NAB [ASX:NAB], ANZ [ASX:ANZ] and Westpac [ASX:WBC] all hit new 52 week highs this week. Ah well, you can’t get them all!

Having said that, Cycles, Trends & Forecasts is not a stock tipping service. But when you have the right framework to analyse the economy, as we believe we do, finding stocks ready to move higher becomes easier.

What you can take from the move in the financial sector is that any worry about Australia falling into a recession anytime soon is pointless. With the banks expanding credit, the economy should hum along, and in time they will report healthy profits.

Credit for the property market is driving the banking expansion. What’s interesting about this is that the banks are coming under pressure to limit the level of loans they make to investors. Regulators are also pressing for them to hold more capital against their mortgage loans. The banks won’t like that, but regulators are trying to contain the risk in the sector (or at least be perceived as doing something).

It looks pointless if news this week is anything to go by. Because if the banks are forced, one way or another, to restrict their lending, other companies will step in and take the business gladly. Non-bank lenders will have a new clientele. One looks like Pepper Group.

The co-head of the company, Patrick Tuttle, told the Australian Financial Review on Thursday:

To the extent [new banking regulation] causes the banks to allocate more capital against mortgage lending that may make our ability to compete [in Australia] easier. And if there are crackdowns on investor lending, that creates an opportunity for non-bank lenders to potentially compete in that space.’ 

They will just pay a slightly higher interest rate for the privilege. But even if it’s not this, it will be something else. History shows the market will find a way to get around any regulations put in place after any downturn. That’s part of why the real estate cycle repeats.

Pepper doesn’t just operate in Australia. By the looks of it, Pepper has been gobbling up distressed debt over in Italy as the banks there clean up their balance sheets. As I keep pointing out, once this process is finished, Italy will move on and the Eurozone crisis will be nothing more than a distant memory as the years pass.

It won’t be long before the investors who’ve stayed out the market begin to see they are being left behind. If you don’t want to be one of them, I suggest you start here. Asset markets are full of opportunity. Start taking them.

Regards,

Callum Newman+,
for Markets and Money

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Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect.


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