The Winners and Losers from These Aussie Trends

Hey, check it out! Australia’s GDP numbers came in on the upside yesterday, with the economy expanding 1.1% in the December quarter. I’m sure you heard all about it already. Let’s just leave it at this for now…life’s good! Let’s leave the doomers behind and start finding opportunities instead.

That’s what the guys with the big money are doing, anyway. Norway’s sovereign wealth fund is looking to increase its exposure to equities by 10%. It needs parliamentary approval for that to happen. Pay attention if it does because 10% of Norway’s fund amounts to US$90 billion. That’s serious cash.

Perhaps more importantly for us, The Australian reported yesterday that the sovereign wealth fund of Singapore (GIC) is going shopping in Australia. Apparently it has about $800 million to spend.

What gives? GIC is giving mandates to its Australian agents to start buying in Brisbane and Perth. You’ll note that these cities are suppressed markets relative to Sydney and Melbourne.

I actually put more weight on GIC looking to invest than the GDP result. Ultimately, money talks in the markets. Consider it a vote of confidence for Australia’s future.

What will that future look like, anyway? Apparently it’s an Australia with four ‘super cities’ and depopulated regional areas. That’s if current trends, based on data from the Australian Bureau of Statistics, persist. That’s two out of three Australians living in Sydney, Melbourne, Brisbane or Perth.

Victoria is the fastest growing state in terms of population growth. It could possibly reach 8.6 million people by 2061. One can only wonder what a house in Melbourne will cost then.

Let’s focus in on property a little closer for the moment. Poor old real estate agency McGrath Limited [ASX:MEA] continues to take a pounding. It’s now down below 70 cents a share. It’s been pretty much downhill for McGrath since its first day of trade, when it was up over $2 ever so briefly.

I bring it up because, last year, I fielded a few inquiries from subscribers. They thought MEA’s predicament was foreshadowing worse news to come for Australian real estate in general.

I didn’t see it that way. At the time, I suggested MEA was probably overpriced at listing, and was being marked down accordingly. I also said its business model was at risk of disruption.

Is that showing up now a little stronger? Buymyplace.com.au Ltd [ASX:BMP] doubled its revenues in the half-year to December. This is a platform for people to sell their home without using an agent.

Listings were up 80%. That’s in a (currently) falling market for listings overall.  BMP is also moving to take on low-cost agency Purplebricks.

Purplebricks is a company that contracts freelance agents to sell property on behalf of clients for a fixed fee. It’s a kind of halfway house between using a full-service agent and selling a home yourself.

The benefit for Purplebricks’ agents is that they are fed the business through the website. The benefit for the buyer is that Purplebricks’ agents are less interested in getting the highest price, as there’s no commission.

You’d have to think Purplebricks has done enough to spook established full-service real estate agent LJ Hooker — Australia’s second biggest real estate agency.

Apparently, LJ Hooker was considering listing on the ASX at one point last year. That idea is gone. Now we have LJ Hooker launching a website called Settl. It’s another DIY home-selling platform. Two brands serving two distinct customers — or so goes the pitch.

Regardless, it’s interesting to watch. You can see how following these trends can keep you out of a stock like MEA. There’s actually an even easier way: Don’t buy a stock in a clear downtrend.

You don’t even have to know why McGrath is trending down, other than the fact that it is. It’s one way to narrow down the opportunities in the market.

That’s a big part of what my colleague Greg Canavan does over at Crisis & Opportunity. He filters the market using stock charts to find compelling opportunities.

We’re about to come full circle for today. I mentioned Australia’s GDP numbers at the top. Part of Australia’s strong showing is down to exports. The terms of trade is looking better than it has in a long time.

Part of that is down to rising LNG exports. That’s a good thing. But there is a worry that Australian companies might get left paying higher gas prices. They’re now competing against the rest of the world for the available gas supply.

Greg’s analysis says certain Australian companies will suffer as these gas price hikes take place. Of course, the flipside is that energy producers and explorers can capitalise on the higher prices.

This is the way of the market. There are always companies doing well, even as others suffer. You’ve seen that play out in part with McGrath and Buymyplace.com.au. For Greg’s take on which stocks look set to soar in the Aussie energy market, go here.

Regards,

Callum Newman,
For Markets and Money


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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