Getting out of property and into stocks?

Thu, 09 Nov 2017  |  

Getting out of property and into stocks

That seems to be a theme developing in the Australian market at the moment, with further evidence of a cooling in the housing market and a coincident lift in the value of the ASX hinting that those with money to invest are avoiding the ultra-expensive, low yielding housing market and instead are looking to the stock market for opportunities.

The Australia stock market is moving higher to the point where the ASX200 index is poised to break above 6,000 points for the first time since 2008. The past decade has been a rocky one for the Australian stock market. There has been the GFC, a commodity price boom and bust, speculators have jumped into and out of bank stocks based on extreme calls on the housing market and many local firms have been dealing with an unrelenting threat from foreign competition.

Some of these issues remain, but a combination of factors appear to be at play in the new found interest in the share market.

Fundamentally important for the ASX outperformance has been the solid profit results from the corporate sector. Profits are being supported by growth in corporate earnings at a time when costs are being well contained by record low wage increases and record low interest costs for business.

With interest rates set to remain at record lows for many months (years?) to come, business profitability is likely to remain robust. A solid expansion in the global economy and still very easy monetary conditions in the advanced economies will continue to spill over to the Australian market.

Housing, on the other hand, is facing its inevitable cyclical downturn after many years of spectacular price increases.

While official interest rates have been at record lows, the banks have been hiking rates for those borrowing interest only and for investment purposes. There has also been a tightening in lending for investment purposes and credit growth is this segment is slowing. Loans for investment in dwellings are now unattractive.

Furthermore, the cost of housing is now a significant deterrent for fresh investment, a point compounded by the dismally low rental yield. In simple terms, buying a dwelling for investment purposes is losing favour. Interestingly, compared to the levels of 2007, the overall level of the ASX is still down around 10 per cent, while Australian house prices have risen over 80 per cent, on average. Housing has proven to be the stand out investment.

It appears that this is starting to change.

With house prices set for a protracted period of weakness and with a very low rental yield, investors are likely to shun additional exposure to property. Money flowing into the stock market will inevitably result.

If there is any sort of investor bandwagon towards the stock market as these trends become increasingly apparent, and history shows rising markets attract enthusiastic investors, the stock market could be set for solid growth, aided by strong investment inflows looking for yield as well as capital growth.

comments powered by Disqus

THE LATEST FROM THE KOUK

2019-20 budget will be 'problematic': here's why

Wed, 20 Feb 2019

This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/2019-20-budget-will-problematic-heres-194957605.html 

------------------------------------------------------------

2019-20 budget will be 'problematic': here's why

Word has it that the framing of the budget, due to be handed down by Treasurer Josh Frydenberg the day after April fools day (and around 6 weeks before the election), is more problematic than usual.

Problematic because there is some mixed news on the economy that will threaten the current forecast of a return to budget surplus in 2019-20.

Housing has gone into near free-fall, both in terms of prices and new dwelling approvals. This is bad news for GDP growth.  The unexpected severity of the housing slump is the key point that will see Treasury revise its forecasts for GDP growth, inflation and wages lower when the budget is handed down.

It will be impossible for Treasury to ignore the recent run of hard data, including the weakness in consumer spending and a generally downbeat tone in the recent economic news when it sets the economic parameters that will underpin its estimates of tax revenue and government spending and therefore whether the budget is in surplus or deficit.

This is the main driver for a cash rate CUT, and it'll happen soon

Wed, 13 Feb 2019

This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/main-driver-cash-rate-cut-itll-happen-soon-200635247.html 

------------------------------------------------

This is the main driver for a cash rate CUT, and it'll happen soon

The prospect that interest rates will be lowered within the next few months is already starting to impact on the economy.

Here’s how.

Around the middle of 2018, financial markets were expecting the RBA to hike official interest rates to 1.75 or 2 per cent over the course of the next 18 months or so. If proof was needed that investors and economists can get it wrong, markets are now pricing in official interest rates to be cut towards 1 per cent over the next 18 months.

The about face has been driven by a raft of disappointing news on the economy, most notably the fall in house prices, the free-fall in new dwelling building approvals and a slump in retail spending growth.

Business confidence has also taken a hit and job advertisements have been falling for eight straight months. Ongoing low inflation and increasing signs of a slowdown in the global economy have simply added to the case for this dramatic change in market pricing.