Last week Milford sent 11 of its investment team to the annual Macquarie Australia Investment Conference, where over 100 companies present to investors from around the world. The conference provides a good update on the state of the economy and the key issues affecting Australian businesses. Here are our key takeaways from this year’s conference.
Retailers under pressure
Many retailers reported tougher conditions in March and April. While high rainfall levels certainly dampened consumer activity, Amazon’s upcoming entrance into the Australian market is a larger cause for concern – you can read our investment analyst Roland Houghton’s comments on this here.
We expect retailers that are most vulnerable to competition from Amazon, such as JB Hi-Fi and Super Retail Group, to trade at lower valuation multiples for the foreseeable future.
Mortgage servicing pressures
Mortgage insurer Genworth reported a surprisingly large increase in home loan delinquencies, particularly in the mining states Queensland and Western Australia. Softer job markets in these states are likely the driver of these mortgage defaults. This is a trend that must be watched closely as there are significant repercussions for Australian listed companies, in particular the large banks.
SOURCE: Australian Bureau of Statistics, Genworth
Commodities coming under pressure again
Australia’s hard commodities the most important being iron ore and coal have enjoyed an impressive rally since early 2016. A major contributor to this is speculative buying by Chinese investors, as well as the rationing of supply in 2015.
Recently, Chinese authorities have implemented tightening measures to bring this speculation under control and, as shown by the graph below, this may be beginning to impact commodity prices. For example, we have seen the iron ore price fall from its recent high of $95 in January to $61 at the end of last week.
The Federal Government collects significant tax revenues on the value of iron ore exports, so this recent price fall removes some of the government budget relief higher iron ore prices were providing.
The big picture aside, there were some good company-specific investment ideas that came from the conference, which the Milford team will be looking at over the next month.
Disclosure of interest: Milford Funds Ltd. holds shares of amazon.com on behalf of clients.
Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.