Sectoral thoughts
On noting one’s own biases, it’s interesting, in that I look at mortgage rates in the US, note homebuilder activity, and say “Oh, too soon for JHX, or RWC, or REH, they are cum downgrade, despite decent valuations”. (note the top left graph, 30 year mortgage rate).
Then I look at Aussie equivalents (across building materials) and my first thought is “Wow they look cheap”.
Here I’m thinking FBU, CSR, BLD, ABC, despite our mortgage rates looking like the below, where a huge increase in the mortgage rates have occurred, and there’s quite a few more hikes yet to come, including almost certainly another 25 next month.
That would get us to 5.3% on the owner occupied investor only, and remember that these loans are assessed with decently sized buffers (throw on another 2-2.5%, which gets you to 7%, higher than the US rate shown above).
So, the logical thought process is probably more akin to “if cumulative tightening to date “hard-stops” the US, such that many builders have downgraded/declined, despite the solid “pipeline of completions to come”, then approaching the Aussie equivalent w/ the same degree of scepticism is wise”.
From there the usual flow on thoughts to retail. JBH, HVN, NCK all benefit from housing related activity, even the car/auto sectors, including after market, and so (in my view) it seems very likely they are over-earning, face material uncertainty, and aren’t a great bet.
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