Aus macro
Topics covered
- Building approvals
- Home lending
- Confidence and the stockmarket
Building approvals
Building approvals data is on its way back down, on both number…
…and value. In no way was this burst of activity sustainable, on either measure, as stimulus measures like HomeBuilder roll off and the pull forward in demand concludes.
For home builders, the Tamawood (TWD) mgmt comments from this morning are relevant to margins from here. Whilst we’ve highlighted the blame bit, below, the overall sentence draws attention to the difficulty in managing cashflows, payables, inventory (working capital in general) and project timing with building material prices bouncing around, and difficult to predict demand and supply for labour. It is very easy for a home builder to make a serious mistake in these conditions.
As such the outlook, to our minds, for listed home builders is not particularly attractive moving forwards. For the building material providers, which are less directly affected by the above, finding the one with reasonable expectations, and reasonable valuations is key. They are, of course, still fully affected by issues regarding labour supply and the price of inputs like electricity/gas, as energy intensive manufacturers. We continue to prefer Adbri (ABC) in this space.
Home lending data
A notable pause in credit, with the data tracking very closely to the building approvals data. Banks, which as a sector have overcapitalised lending activity, collateral value and benign BDD’s, are the one’s to watch out for here. We are underweight the banks, given the above, and given our concerns over the current lockdown, although within that underweight we continue to hold NAB and CBA, expecting buybacks and provision write-backs to underpin momentum over reporting season.
Animal spirits
As the famous economist Roger Farmer puts it; “the vagaries of the market are caused by the animal spirits of market participants”.
Well, than this particular animal appears particularly nervous. Confidence reflects the lockdowns, despite the well targeted nature of Jobkeeper 2.0 (and yes, we can call it that, or something very similar to it, because the current level of support works in a similar way at a similar magnitude, it just cuts out the employer, but otherwise preserves the ties between workers and the firm). However the exuberance of the stock market is a striking contrast.
We are underweight Australian shares (which doesn’t mean not having any, indeed, it just means owning fewer than you otherwise ordinarily might, over an economic cycle) and prefer to gain our equity exposures through high quality companies whose earnings are less dependant on the economy, and through spreading the capital far and wide across international equity markets.
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