Category: Stock Markets

Robin Christie discusses the ‘Infrastructure Metric’ report for the September 2015 quarter from Infrastructure Partnerships Australia (IPA) and BIS Shrapnel:

…..2014/15 represented the worst financial year for total work won by civil contractors since the metric began in 2010. However…. this result masked an emerging recovery in non-mining sectors…..

According to IPA CEO, Brendan Lyon, these figures show sustained and strong growth in transport infrastructure, “led by the massive projects being funded through a combination of asset recycling by states and Commonwealth funding”

……mining was once the largest single category of civil construction – representing 46 per cent of the total work done in the 2012/13 financial year, for example. However, [Lyon] said that mining related infrastructure was “virtually non-existent now”, having recorded “a full year of near-zero readings”.

While he said that NSW and Victoria were largely leading the way in terms of filling the resources gap with non-mining infrastructure activity, Lyons expressed some concern that the mining-reliant states need to do more to secure their own economic futures…..

Source: Infrastructure figures show economic rebalancing act

A Centre for International Finance and Regulation (CIFR) funded study, co-authored by Dr Eric Knight from The University of Sydney and Professor Dariusz Wójcik from the University of Oxford, released today, ranks major international finance centres according to size.

From Robin Christie at FINSIA:

To compile its list of the top 10 international financial centres by cross-border fees, the study totalled each city’s fees over the 14-year period between 2000 and 2014 in US dollars. The top 10 are listed as follows:

• London: $130,943 million
• New York: $125,242 million
• Zurich: $100,430 million
• Frankfurt: $53,277 million
• Paris: $40,482 million
• Toronto: $32,967 million
• Tokyo: $22,522 million
• Amsterdam: $17,948 million
• Hong Kong: $9,996 million
• Sydney: $5,126 million

One paragraph that caused me to hesitate, though was:

“Unsurprisingly we found that the size of a city’s population is an important determinant of international finance centres, so all things being equal, cities that have the ability to grow their population will outperform,” said Knight.

They may have the cart before the horse here. Success as a financial centre may encourage population growth. Not the other way round. Else the list would include Shanghai, New Delhi, Karachi, Moscow, Lagos, Istanbul and Sao Paulo.

Source: Sydney hitting the finance big leagues

Excellent summary by Gerard Minack of headwinds facing the ASX:

Excluding miners, the listed sector enjoyed 15%-plus annual sales growth last cycle; now nominal sales growth is less than one-third that pace….

Structurally lower domestic sales, combined with the stress in the resource sector – which, in my view, is not at its lows – points to further under-performance of Australia equities versus other developed markets….

There are reasons to be positive about the medium term outlook for Australia. But the problem for investors is that increasingly the equity market does not reflect the economy. Australia’s listed market has a much larger exposure to financials and materials (which includes miners) than other markets – and these sectors’ share of market capitalisation are much larger than their share of the domestic economy. Put simply, Australia’s equity market is overweight two sectors at the end of their super-cycles; it is overweight the past and underweight the future.

Not sure I would go so far as to exclude banks and mining from Australia’s future. Collapse of the commodity market is cyclical — admittedly the China slow-down is likely to be a long cycle — rather than a secular trend. Bank growth is also likely to slow, both from sluggish housing and job growth (from mining). Again this is cyclical rather than structural.

Source: Special Report: Gerard Minack on the great ASX sclerosis – MacroBusiness

David Llewellyn-Smith quotes UBS:

A normalisation of commodity demand in China seems further away post our trip. Our expectations for a sequential acceleration in infrastructure build do not align with insights on the ground. The 13th Five Year Plan makes it clear the emphasis to 2020 will be on services, consumption, ‘new economy’ sectors and cleaning up the environment. The emphasis has shifted to quality of growth and living standards, not quantity. This presents a challenging commodity demand outlook.

Source: UBS: China ain’t recovering as foreseen – MacroBusiness

From Bob Lefsetz:

….the truth is the data doesn’t lie.

Oh yes it does, you say! Numbers can be manipulated to say whatever you want them too, you can’t trust polls! Which is why [Nate] Silver aggregates them, and we can argue with interpretation, but raw data counts. And what the data says is Donald Trump has high unfavorables. He might have 20+% of the electorate today, but when the losers drop out are their followers going to decamp to Trump? Not according to the data. Which also tells us this far out the polls are nearly meaningless.

So you can ignore the Trump show. It’s gonna get canceled.

Source: Trump: The Data | The Big Picture

From Joachim Fels, global economic advisor at PIMCO:

….The downside risks to the global economy today are really concentrated in emerging markets. After August, investors have been watching developments in China with particular caution. I should first note that our baseline view for China sees below-consensus growth, along with policy leadership with the will and the wallet to manage the slowdown. Indeed, policy actions in the past month or so have mollified markets to some degree. But there are a lot of uncertainties. China’s policymakers have the tools, but they must manage a tricky transition, and as global investors we are left wondering if we have enough transparency into the details. The tail risk remains of a really hard landing in China, perhaps a very sharp devaluation. It’s not our baseline view, but an important risk to monitor.

Source: Plodding Along A Discussion of Todays Global Economy | PIMCO

From Matt Siegel at Reuters:

A major cyber-attack against Australia’s Bureau of Meteorology that may have compromised potentially sensitive national security information is being blamed on China, the Australian Broadcasting Corporation (ABC) reported on Wednesday.

The Bureau of Meteorology owns one of Australia’s largest supercomputers and the attack, which the ABC said occurred in recent days, may have allowed those responsible access to the Department of Defense through a linked network.

The ABC, citing several unidentified sources with knowledge of the “massive” breach, placed the blame on China, which has in the past been accused of hacking sensitive Australian government computer systems.

Source: China behind ‘massive’ cyber-attack on Australian government: ABC | Reuters

From Brian Whitmore at RFE/RL:

….”Russia’s new course means it is free from any and all influences and restrictions,” Frolov wrote. “This freedom means that Russia does not need to abide by international law…and that Russia’s claims to a leading role in the world cannot be contained.”

The cost of this diplomacy of liberation, of course, is increasing international isolation and ostracism. For the time being, as Frolov notes, Moscow has been able to “divorce foreign policy from economic interests and capabilities.” But in the long run, the current course is not sustainable.

Nevertheless, isolated and resentful powers — particularly isolated and resentful powers with nuclear weapons, large militaries, and vast natural resources — can cause a lot of damage.

Which means that, in the short term, we are in for what Ben Judah, author of the book Fragile Empire: How Russia Fell In And Out Of Love With Vladimir Putin, calls “our violent new normal.” “The unthinkable happens, is quickly accepted, and fades obscure into a darkening background,” Judah wrote recently in Prospect. “Grey wars, is what we have now: creeping skirmishes, proxy clashes, hybrid assaults and dogfights with Russia.”

Source: Russia’s (Not So) Splendid Isolation