Today’s Markets and Money brings you a dose of optimism.
We’re only in the first week of trading for 2016 and already investors are in the grip of a gloomy outlook.
The Australian Financial Review reported on Wednesday that,
‘A survey of nearly 10,000 Australians by Investment Trends found investors expect the sharemarket to grow by less than 5 per cent this year, reflecting their nervousness after a dismal year of returns in 2015.’
Are things really that bad?
Not in my book. I actually think the Aussie economy is quite strong.
Does this signal downturn to you?
‘I do break into a cold sweat sometimes wondering how we can meet demand with some of the orders coming through.’
So said Brickworks Limited’s [ASX:BKW] managing director Lindsay Partridge to the Australian Financial Review back in September last year.
Brickworks manufactures and distributes the following: bricks, pavers, precast concrete and roofing tiles, as well as structural timbers.
The whole company is intrinsically tied to the Australian housing and construction cycle. That’s the sector currently running hot on the east coast, if you’ve forgotten.
Now the Australian Financial Review reports that the company kept all their factories running over the Christmas period for the first time in a decade.
According to the paper, ‘Mr Partridge said he only has a few days’ worth of stock on hand at some sites and he’s feeling very good about business in 2016.
‘The pipeline is full and we see a solid year’s work in front of us. There’s no question about being busy…I know [this year] is going to be good.’
I know what you’re thinking. Of course he’s going to say that.
Here’s what you do when you come across a comment like that.
Bring up a chart of the company in question. Then we can get an idea of what the stock market thinks about the prospects for BKW.
What this man reveals about the Australian property market goes against ALL popular commentary. But that’s nothing new — he’s used to causing a stir in the mainstream media. He predicted the 2008 US housing market crash as far back as 2004.
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There’s money in bricks right now
Right now you’d have to say investors agree with him. You can see since the middle of December the stock has risen very strongly.
This is a notable move. It’s held up too, despite the concerns in China buffeting the wider share market at the moment.
Investors aren’t selling Brickworks down in a big way. The stock looks to be in strong hands.
In fact, the stock is now trading just under its all-time high of $16.80 set in 2009.
We can take this to mean that the stock market is pricing in strong earnings to come for Brickworks — regardless of the moves in the Shanghai index.
And if you look at the development going on around the country, it’s not hard to see why.
Brisbane starting to rumble
The Australian Financial Review also reported that developers have purchased more than $100 million worth of development sites in Brisbane in the last few months. There’s close to $1 billion worth of apartments planned too.
To quote the paper: ‘It is not just Brisbane. The Gold Coast is also ramping up with Sydney developer Ralan spending about $70 million buying a site for what will be a $1.4 billion project.’
Let’s not forget down south either. There’s still plenty on the drawing board for Melbourne and Sydney.
This week came news that Singaporean developer Hiap Hoe will develop a $500 million hotel and apartment project at 380 Lonsdale street in the Melbourne central business district.
On Monday there was also the report that The Star Entertainment Group is close to luring luxury hotel brand the Ritz-Carlton to Sydney in another $500 million development.
Take note: the Star Group is already spending $500 million on revamping its existing Star Sydney complex.
That’s not all.
A reliable indicator of consumer confidence is starting to sound…
Holiday homes going under the hammer
The Age reported on Monday that sales of holiday homes in coastal areas are starting to pick up:
‘”From 2008 all the way to 2013-14 most of these markets were tracking back in value, but now we’ve been seeing for at least the last year that demand is coming back,” CoreLogic head researcher Tim Lawless said.
‘A recovery in people’s personal wealth, healthier share portfolio’s and substantial rise in Melbourne and Sydney property prices were prompting purchasers to splash out on a beach home, he said.’
That’s a solid sign of consumer confidence.
If there’s been a boom inner city, as we’ve seen in Melbourne and Sydney, people start setting their sights on the second home market. Read holiday homes and future retirement abodes.
It typically lifts in the summer.
What’s new is Airbnb and similar schemes have made it quite profitable to own a holiday home.
However, as an investor you need to be careful. When there is a slump, holiday areas, regional locations, and high priced inner city luxury dwellings all show greater volatility.
These properties will be the first to feel it. If you need to sell at this time, you’ll struggle to find a buyer.
But for our purposes today, it’s enough to recognise that there’s enough cash and confidence around to give these areas a lift.
I’m positive on the Aussie economy and stock market in 2016.
Over at Cycles, Trends and Forecasts, we’ve been saying the same thing since we launched in 2014.
If you want to know how to time the economy like this, you need to go here to find out.
Associate Editor, Cycles, Trends and Forecasts
Ed Note: This article was first published in Money Morning.