Rob Coyte's Blog
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- Prosper or Panic? 06-Oct-2011
- A Revolution Occurring? 13-Sep-2011
- How to Pay Off Your Mortgage 05-Sep-2011
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BHP Announces Record First Half Profit
BHP has just announced a record first half profit of US $10 Billion.
Interestingly, the CEO said that they were not looking at major acquisitions given that they were having to pay “top dollar” for assets. They also said they were going to pump Billions into developing the assets they already own as way of keeping the supply of their product flowing.
There is no doubt that the emerging economies are growing and as the Western World continues to recover from the GFC we will no doubt see further demand for oil, coal and other commodities. However, the question becomes how is the demand and supply equation balanced, especially in light of the very high prices these commodities are now trading at? Where is the potential risk? Is it to “surprising” the market with good news or indeed disappointing news?
I would argue the latter so, ceteris paribus (buyer beware) for investors that blindly following the commodities train. Remember, it is the amount of profit over the long term that will ultimately determine a company’s value, hence share price.
Australian Commercial Property Update
The Property Council of Australia has released the latest figures for Australian commercial property for the quarter ending December 2010.
The Sydney CBD vacany rate fell from 8.5% to 8.2% this downward move was exaggerated for premium office space as vacancy rates fell from 4.8% to 3.1%, which is the lowest level in a decade. These rates were also supported by a fall in sub-leasing where companies are keeping their leased space rather than leasing it to 3rd parties. In Melbourne CBD the vacancy rate fell from 6.5% to 6.3%
Glen Byrnes from the Property Council told the Australian Financial Review that vacancies are back to pre GFC levels. Director of Research from Jones Lang LaSalle Andrew Ballantyne said rental growth will be quite strong over the next 2 years as supply dries up. At this point it would be expected that the developers would then become interested in new projects.
At the moment astute investors including very large super funds are looking to position themselves with acquisitions before the market turns leading to higher prices. REST and ARIA recently made purchases and the Future Fund is looking to purchase a property in Brisbane CBD.
With sound fundamentals there are plenty of opportunities for those that are patient.
The Sydney CBD vacany rate fell from 8.5% to 8.2% this downward move was exaggerated for premium office space as vacancy rates fell from 4.8% to 3.1%, which is the lowest level in a decade. These rates were also supported by a fall in sub-leasing where companies are keeping their leased space rather than leasing it to 3rd parties. In Melbourne CBD the vacancy rate fell from 6.5% to 6.3%
Glen Byrnes from the Property Council told the Australian Financial Review that vacancies are back to pre GFC levels. Director of Research from Jones Lang LaSalle Andrew Ballantyne said rental growth will be quite strong over the next 2 years as supply dries up. At this point it would be expected that the developers would then become interested in new projects.
At the moment astute investors including very large super funds are looking to position themselves with acquisitions before the market turns leading to higher prices. REST and ARIA recently made purchases and the Future Fund is looking to purchase a property in Brisbane CBD.
With sound fundamentals there are plenty of opportunities for those that are patient.
What is going to be in huge demand as the world’s population grows?
A report released by the UN of world food prices in December showed that they had reached record levels, surpassing its previous high of June 2008. It will be remembered that in that year there were “food riots” in Haiti and other countries as people could not pay for their daily food requirements. Unlike then, the prices of some staple cereals such as rice remain relatively stable, though the price of wheat is rising. The increasing costs of other cereals and sugar were the main factors behind the rise in the index which will only get worse as population grows and farming land becomes more scarce due to urbanisation.
The impact of food costs are further exacerbated by natural disasters such as floods and droughts which also disrupt production and supply.
As investors there are a number of ways that we can look to benefit from owning assets in the “food chain” over the long period that this will play out.
The impact of food costs are further exacerbated by natural disasters such as floods and droughts which also disrupt production and supply.
As investors there are a number of ways that we can look to benefit from owning assets in the “food chain” over the long period that this will play out.
Is the world economy and investment markets getting better?
Is the world economy and investment markets getting better? At the very least investors are saying through their actions that the world going forward is not as grim as what they thought in March 2009.
The broadest index of the US share market, the S&P 500 has soared 91 percent from a 12 year low in March 2009. We have all heard about the massive government stimulus measures but also company profits are exceeding expectations. Companies in the S&P 500 posted higher than estimated results in all three quarters reported so far for 2010. Furthermore, looking forward analysts predict that company earnings will increase 14 percent in 2011, according to Bloomberg.
The US is faced with unemployment at high levels around 10% and getting enough economic growth to reduce that figure is posing to be a big problem. Furthermore, the US housing market remains weak although it has stabilised which along with employment is also an important driver for an economy that relies on consumer spending.
Whilst the US share market has effectively doubled over this period the value of the Australian dollar has also risen rapidly which means that overseas assets held in $US such as those held in managed funds appear not to have done anything when viewed in Australian dollar terms. Over the long term currency has no impact as you win some years and lose in others. I believe the Australian dollar will weaken in relation to the US dollar for a vast range of reasons. This may happen in 6 months or 6 years in the meantime review your strategy but importantly don’t chase your tail simply ask given current valuations where is the risk? I believe there is long term value in a range of assets including commercial property and shares. The Australian dollar and residential property market I would argue the risks of them getting substantially higher are low and indeed the risk is that those assets may fall given current valuations.
The broadest index of the US share market, the S&P 500 has soared 91 percent from a 12 year low in March 2009. We have all heard about the massive government stimulus measures but also company profits are exceeding expectations. Companies in the S&P 500 posted higher than estimated results in all three quarters reported so far for 2010. Furthermore, looking forward analysts predict that company earnings will increase 14 percent in 2011, according to Bloomberg.
The US is faced with unemployment at high levels around 10% and getting enough economic growth to reduce that figure is posing to be a big problem. Furthermore, the US housing market remains weak although it has stabilised which along with employment is also an important driver for an economy that relies on consumer spending.
Whilst the US share market has effectively doubled over this period the value of the Australian dollar has also risen rapidly which means that overseas assets held in $US such as those held in managed funds appear not to have done anything when viewed in Australian dollar terms. Over the long term currency has no impact as you win some years and lose in others. I believe the Australian dollar will weaken in relation to the US dollar for a vast range of reasons. This may happen in 6 months or 6 years in the meantime review your strategy but importantly don’t chase your tail simply ask given current valuations where is the risk? I believe there is long term value in a range of assets including commercial property and shares. The Australian dollar and residential property market I would argue the risks of them getting substantially higher are low and indeed the risk is that those assets may fall given current valuations.
Buying insuance companies after the QLD floods
The events of the last couple of weeks with the floods in QLD has been a reminder of how volatile mother nature can be. The estimated damage bill is expected to run to as much as $6 Billion which would make it Australia’s costliest disaster when compared to the 1999 Sydney hailstorms of $2 Billion and the 1989 Newcastle earthquake which cost $1 Billion.
This would obviously lead to those that are covered by an insurance policy and those who are not. Those with an insurance policy need to check whether their policy covers floods as the fine print in some policies excludes such damage.
With the large amount of expected claims to insurance companies the share prices of insurers like IAG and Suncorp have fallen dramatically since the start of the floods. It should be noted the Suncorp’s policy does specifically cover floods which means that their payouts will be considerable larger than an insurance company that can wriggle its way out of honouring the policy. However, local insurers only cover a certain amount of damage themselves and they then apply to reinsurers for any amount over that threshold. In Suncorp’s case the damage bill will be limited to around $90 million with large overseas reinsurers footing the rest. Given the cost for Suncorp is capped it may be a good opportunity to pick up these sold down insurance companies shares. Indeed, no doubt premiums will increase next year plus less people will go without insurance policies with such a disaster fresh in their minds meaning more premium income for the insurers.
This would obviously lead to those that are covered by an insurance policy and those who are not. Those with an insurance policy need to check whether their policy covers floods as the fine print in some policies excludes such damage.
With the large amount of expected claims to insurance companies the share prices of insurers like IAG and Suncorp have fallen dramatically since the start of the floods. It should be noted the Suncorp’s policy does specifically cover floods which means that their payouts will be considerable larger than an insurance company that can wriggle its way out of honouring the policy. However, local insurers only cover a certain amount of damage themselves and they then apply to reinsurers for any amount over that threshold. In Suncorp’s case the damage bill will be limited to around $90 million with large overseas reinsurers footing the rest. Given the cost for Suncorp is capped it may be a good opportunity to pick up these sold down insurance companies shares. Indeed, no doubt premiums will increase next year plus less people will go without insurance policies with such a disaster fresh in their minds meaning more premium income for the insurers.
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