Australia & NZ Archives - Page 32 of 96

July 26, 2016

Privatisation has damaged the economy, says ACCC chief

In a blistering attack on decades of common government practice, Australian Competition and Consumer Commission chairman Rod Sims said the sale of ports and electricity infrastructure and the opening of vocational education to private companies had caused him and the public to lose faith in privatisation and deregulation.

“I’ve been a very strong advocate of privatisation for probably 30 years; I believe it enhances economic efficiency,” Mr Sims told the Melbourne Economic Forum on Tuesday. “I’m now almost at the point of opposing privatisation because it’s been done to boost proceeds, it’s been done to boost asset sales and I think it’s severely damaging our economy.”

Mr Sims said privatising ports, including Port Botany and Port Kembla in NSW, which were privatised together, and the Port of Melbourne, which came with conditions restricting competition from other ports, were examples where monopolies had been created without suitable regulation to control how much they could then charge users……

Deregulating the electricity market and selling poles and wires in Queensland and NSW, meanwhile, had seen power prices almost double there over five years, he said.

I have also been a strong advocate of privatising state assets, but Rod Sims raises some important concerns that need to be addressed.

There is a strong trend in capitalist economies away from free enterprise and towards privatised “monopolies”. Investors place a great deal of emphasis when evaluating stocks on a company’s “economic moat” or competitive advantage. Both of which imply the ability to restrict competition. While this may maximize revenue for the individual economic unit, it is harmful for the economy as a whole.

Which brings me back to Mr Sims’ point. Higher prices paid for infrastructure services destroy the competitiveness of the economy as a whole, with profound implications for exports and productivity.

Source: Privatisation has damaged the economy, says ACCC chief

July 7, 2016

Major banks’ credit rating outlook cut to ‘negative’

From Clancy Yeates:

Australia’s banks face the threat of higher funding costs, after Standard & Poor’s downgraded the big four’s credit rating outlook to “negative”, a direct result of its action on the government’s top-notch rating.

….the banks’ credit ratings are automatically raised by two notches because S&P assumes they would receive government support in times of financial stress. Action on the government’s rating therefore tends to flow directly into the banks’ ratings.

“The negative outlooks on these banks reflect our view that the ratings benefit from government support and that we would expect to downgrade these entities if we lower the long-term local currency sovereign credit rating on Australia,” Standard & Poor’s said.

While the warning does not reflect changes in the banks’ financial performance, analysts say that if it leads to a downgrade in the actual credit rating of banks, it could push up bank funding costs all the same.

….”While Australian banks enjoy relatively high credit ratings and are deemed to be in the top quartile of global capital requirements, the frequent use of offshore wholesale funding markets is likely to result in higher funding costs.”

The big four raise about 30 per cent of their funding by issuing bonds in wholesale funding markets, so the cost of this debt can have a significant influence on the sector…..

To avoid moral hazard, with banks taking unnecessary risk at the taxpayer’s expense — a case of heads I win, tails you lose — Treasury and the RBA should commit themselves to the Swedish example. Banks that require rescue should forfeit control of their assets by issue of a controlling equity stake to the government. That would significantly curtail management and shareholders’ willingness to take unnecessary risks. And create a strong incentive to increase capital buffers. Not just to comply with APRA rules, but to make their businesses as bullet-proof as possible. Conservatively-run banks would be a major asset to the economy.

What APRA needs to focus on is instilling the right culture in banks. Rather than management focused on incentives to grow the business, there should be more emphasis on protecting the business and ensuring its long-term survival.

Source: Major banks’ credit rating outlook cut to ‘negative’

July 7, 2016

ASX 200: Banks weigh on the index

The ASX 200 encountered resistance at 5300 and is likely to test support at 4900/5000, with breach of the lower trend channel and declining 13-week Money Flow warning of selling pressure. Breach of support at the recent low of 5050 would confirm.

ASX 200

The Banks are weighing on the index, with APRA warning of further capital increases and concerns over a slowing housing market, particularly apartments. The ASX 300 Banks Index is testing primary support at 7200. Breach would offer a target of 6400*. Weakness in this sector is likely to affect the entire market.

ASX 300 Banks

* Target calculation: 7200 – ( 8000 – 7200 ) = 6400

July 5, 2016

How Hanson should frame the immigration debate | MacroBusiness

From Leith van Onselen:

Senator-elect One Nation’s Pauline Hanson dominated news headlines yesterday after she warned of “terrorism on our streets” and suburbs “swamped by Asians”, prompting righteous indignation from all manner of MSM commentators.

The below extract from The Canberra Times captures some of the shenanigans: At a fiery press conference in Brisbane on Monday, Ms Hanson claimed the major parties should respect the large number of votes One Nation pulled, and urged a return to an Australia “where we as a nation had a right to have an opinion and have a say”…… “We are a Christian country and that’s what I’m saying … [former Liberal prime minister] John Howard said we have a right to say who comes into our country and I’m saying exactly the same.”

My simple advice to Ms Hanson is that if she wants to be taken seriously in the immigration debate, then she must dump the racial overture and instead focus on the level of immigration and why it is too high.

The fact that many of us in major cities are stuck in traffic, cannot get a seat on the train, are experiencing crowded hospitals and schools, and cannot afford a home has little to do with race, but rather a high immigration intake that has overwhelmed our cities’ ability to cope with the influx.

….Ms Hanson should also highlight that the system surrounding so-called skilled and student visas has been corrupted, with widespread rorting and fraud revealed by the recent joint ABC-Fairfax investigation (see Australia’s hidden people smuggling scandal). Again, rather than focusing on race, Ms Hanson should argue to restore integrity to Australia’s visa system so that it is not overtaken by “crooks and criminals”.

…More broadly, Ms Hanson should highlight that for a major commodity exporter like Australia, which pays its way in the world by selling-off its fixed endowment of resources, ongoing high immigration can be self-defeating from an economic standpoint. That is, continually adding more people to the population year after year means less resources per capita. It also means that Australia must sell-off its fixed assets quicker just to maintain a constant standard of living (other things equal).

Again, none of this has anything to do with race – i.e. where the migrants come from – but rather that the overall immigration intake is too high and has overwhelmed the capacity of the economy and infrastructure to absorb them, eroding individuals’ living standards in the process.

There has also been no proper debate within the community about the appropriate level of immigration and no political mandate for pursuing a “Big Australia”.

…..We should not forget that an Essential Research opinion poll published in May revealed that the overwhelming majority of Australians (59%) believed “the level of immigration into Australia over the last ten years has been too high”, more than double the 28% of Australians that disagreed with that statement.

….under current policy, Australia is on track to double its population by 2050 to more than 40 million people – something most Australians oppose. Again, this comes amid virtually no discussion nor mandate for this dramatic change, nor any plan on how to cope with this growth.

As long as Ms Hanson plays the “race card”, she will be rightly ridiculed and has already lost the debate. Population policy is far too important an issue to be segregated into pro- and anti-immigration corners based upon views about race and cultural supremacy. Instead, the issue needs to be debated rationally and based upon whether or not immigration is benefiting the living standards of the existing population.

I agree. This has nothing to do with race or religion. Pauline Hanson is barking up the wrong tree. This is about numbers. I suspect the same is true of the Brexit vote. I am all in favor of skilled migration (being a migrant myself) but any newcomer should ask themselves how they can contribute to existing Australian values and culture….rather than preserve their own.

Source: How Hanson should frame the immigration debate – MacroBusiness

July 4, 2016

Don’t blame demographics, blame the government

Niels Jensen’s Absolute Return monthly newsletter raises one of the major structural impediments to growth in Europe:

As [economist Woody Brock] pointed out when in London, ageing has only had a modest impact on GDP growth and inflation so far. Governments have ruined economic growth in Europe; demographics haven’t. If employment laws are such that employment is virtually for life, companies stop hiring. If you can’t fire, you don’t hire, as Woody pointed out….

Similar impediments are evident in Australia. If developed economies want to compete in global markets, they need to get their house in order. Raising barriers to free trade is not a sustainable alternative but will instead destroy any remaining semblance of competitiveness. Trade barriers result in a limited choice of products, forcing customers to pay higher prices and accept inferior quality. Lack of competition leads to the death of innovation. Quality deteriorates and we soon face another zombie industry dependent on government support. A prime example would be the motor industry — in Europe, North America, even Australia — over the last half-century.

June 16, 2016

Who is/isn’t buying Australian stocks?

Two interesting charts from Tim Baker at Deutsche Bank. Foreign investment in ASX equities, avoiding banks and resources, has slowed to a 5-year low.

Foreign Investors in ASX

Super fund investors have lost their enthusiasm for bank deposits, as interest rates tumble, and are allocating more to equities.

Super Fund Investors

June 16, 2016

Hope isn’t a strategy

Cautious optimism has evaporated after poor recent polls favoring a BREXIT. I hope that sanity prevails but, as the saying goes: “Hope isn’t a strategy”.

Better to have a Plan A and a Plan B to cope with the two alternatives. But if enough investors decide their money is safer in the bank, then expectations of a fall are likely to become a self-fulfilling prophecy.

The S&P 500 does not appear unduly alarmed but a sharp fall on 13-week Money Flow warns of selling pressure. Reversal below 2000 would warn of another test of primary support (1820 to 1870).

S&P 500 Index

Dow Jones Industrial Average shows a similar picture. Breach of medium-term support at 17400 to 17500 would warn of another test of primary support at 15500 to 16000.

Dow Jones Industrial Average

A CBOE Volatility Index (VIX) spiked to 20, indicating increased market risk. Long-term measures remain unaffected.

S&P 500 VIX

Europe

Germany’s DAX retreated below medium-term support, warning of another test of primary support. 13-Week Money Flow below zero suggests a primary down-trend.

DAX

The Footsie broke support at 6000 warning of a test of 5500. Reversal of Money Flow below zero would suggest a primary down-trend.

FTSE 100

* Target calculation: 6400 + ( 6400 – 6000 ) = 6800

Asia

The Shanghai Composite Index continues to range between 2700 and 3100.

Shanghai Composite Index

Japan’s Nikkei 225 Index broke support at 16000 and its lower trend channel, warning of another decline.

Nikkei 225 Index

* Target calculation: 15000 – ( 18000 – 15000 ) = 12000

India’s Sensex remains bullish, with a short retracement below 27000. Bearish divergence on 13-week Money Flow would end if the descending trendline is penetrated.

SENSEX

Australia

The ASX 200 broke medium-term support at 5200, warning of another test of primary support at 4750. Expect support at the former level of 4900 to 5000 but it is questionable whether this will hold. Combination of a seasonal sell-off and BREXIT fears are going to test buyers’ commitment.

ASX 200

The Banks Index fell sharply and breach of support at 7200 would offer a target of 6400*.

ASX 300 Banks

* Target calculation: 7200 – ( 8000 – 7200 ) = 6400

Health Care is experiencing a strong sell-off, led by CSL. This is a good long-term stock but exposure to the UK/Europe has spooked the market.

ASX 200 Health Care

June 16, 2016

Gold surges on BREXIT fears

Long-term interest rates continue their decline, with 10-year Treasury yields breaking support at 1.65 percent. Breach signals a test of the all-time (July 2012) low of 1.40 percent.

10-year Treasury yields

Gold broke resistance at $1300/ounce on fears of a BREXIT vote on June 23rd and expectations that the Fed will need to soft-pedal on interest rates. Breakout offers a long-term target of $1550*.

Gold

* Target calculation: 1300 + ( 1300 – 1050 ) = 1550

Chinese buying of gold has been relegated to secondary status, at least for the next week. Sale of foreign reserves appear to have resumed, with the USDCNY running into resistance at 6.60. PBOC sale of foreign reserves weakens the Dollar, boosting demand for Gold.

USDCNY

Disclosure: Our Australian managed portfolios are invested in gold stocks.

June 14, 2016

BREXIT: Stocks to watch

From Bell Potter:
Australian stocks with more than 80% of revenue derived from UK/Europe:

Macquarie Atlas Roads
Hendersons

HGG

Ansell
Amcor

AMC

Stocks with 40% to 50% of revenue derived from UK/Europe:

Cochlear
CSL

Stocks with 30% to 40% of revenue derived from UK/Europe:

Resmed
Brambles

May 26, 2016

Why Aussies sell in May

We all know “sell in May and go away” but why do Australian investors mimic their Northern counterparts when they are headed into Winter, not Summer holidays?

Apart from the influence of large Northern hemisphere indexes on smaller Southern hemisphere markets, we should also consider that the financial year for Australians ends on 30 June. Institutions tend to window-dress their balance sheets before the year-end by selling off non-performers and building a strong cash holding for new acquisitions. Private investors are also motivated to realize tax losses before the year-end.

Bell Potter’s Coppo Report observes:

“I have looked at tax loss selling over the years & it actually begins earlier than most realise – around now. It usually goes for 4 weeks until the 3 week of June & then some stocks start to recover.”

Only 35% of ASX 200 stocks are lower but these tend to be the heavyweights, with Coppo pointing out they represent 56% of market capitalization. At an average annual loss of -15%, they offer plenty of motivation for tax loss selling.