Construction work done

Falling hot on the heels of the inflation print, the value of construction work done (below table, see WD-C, across Residential, Non-res, and total).

Housing activity, and construction in general, is very sensitive to interest rates, at least in Australia. The consumer, and the contstruction sector, are very weak.

The problem is, it seems the RBA has to keep up the beatings, given that, despite our puzzlement, inflation is taking a bit too long to return to target.

We absolutely think it will, but the path to get there can be quite different (hence soft and hard landing). Our thinking on which one it will be has essentially become “data dependant”, e.g. we are waiting for, and trying to read, the economic tea leaves as and when the data drop. We find ourselves lurching somewhat between either narrative, depending on whether the print was “hot or cold”.

When in doubt, remain diversified.

If we muddle through, great. If not, we’ll average down into cheaper units. We are already 3-4% UW Australian shares, and I’ve been loathe to stretch it too far (e.g. going to far UW) given our view that inflation would be defeated. Such an underweight won’t be enough to make for good monthly returns if we experience a repeat of April (which, believe it or not, was only a drawdown of ~3%, and given normal peak to trough drawdowns are in the order of 10%, not much of anything particularly nasty, given May bounced back a fair bit).

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

Receive our investment insights

Something went wrong. Please check your entries and try again.