Thane Group Newsletter – December 2016

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NEWSLETTER – DECEMBER 2016

BUSINESSES AT THE COLD FACE

THANE FINANCE

Whilst we have seen some positive trends midyear, it appears that the latter part of the year will be somewhat more challenged.

ANZ economists have sighted that markets are weakening in the back end of 2016 due to a noticeable reduction in Firms’ profits. They have noted that they expect the profitability index to average 6.9 on a comparative of 11.9 in the first 6 months of the year.

In line with this the NAB (economic) Survey has placed business conditions at a 19 month low.

The All Ords sits at 5612 on a slight reduction on the previous quarter.

There were some signs of optimism with the new US President elect planning to spend up big and the roll on effect it might have on inflation, but the domestic challenges for Australia are now shining through to close the year.

The following chart of All Ords tracked since the beginning of the year supports the Economist views above.

Prices
Date Open High Low Close Avg Vol Adj Close*
1 Dec 2016 5,502.40 5,639.90 5,443.50 5,619.10 963,444,700 5,619.10
1 Nov 2016 5,402.40 5,583.50 5,138.90 5,502.40 911,342,800 5,502.40
3 Oct 2016 5,525.20 5,578.90 5,347.30 5,402.40 757,317,600 5,402.40
1 Sep 2016 5,529.40 5,560.70 5,294.10 5,525.20 844,878,100 5,525.20
1 Aug 2016 5,644.00 5,691.80 5,510.20 5,529.40 794,704,900 5,529.40
1 Jul 2016 5,310.40 5,650.80 5,237.80 5,644.00 769,259,600 5,644.00
1 Jun 2016 5,447.80 5,461.00 5,131.90 5,310.40 898,921,500 5,310.40
2 May 2016 5,316.00 5,489.80 5,253.20 5,447.80 870,550,000 5,447.80
1 Apr 2016 5,151.80 5,342.90 4,975.70 5,316.00 805,858,800 5,316.00
1 Mar 2016 4,947.90 5,272.10 4,936.60 5,151.80 992,348,300 5,151.80
1 Feb 2016 5,056.60 5,122.10 4,762.10 4,947.90 973,879,100 4,947.90
4 Jan 2016 5,344.60 5,379.60 4,857.90 5,056.60 794,933,200 5,056.60
* Close price adjusted for dividends and splits.

Moving forward, we are hoping for a firmer market for the beginning of next year as talk of interest rate rises and US activity grows some confidence. The market is offering fair value towards the end of the year that may also create some activity in the beginning of the next calendar year.

Source : shareprices.com.au, finance.yahoo.com, ANZ economy speak (catalyst, shareprice.com.au).

THANE CONVEYANCING

Report on Settlements & Current Volumes for November 2016

Although settlements are still at an all-time low, the titles office statistics show an 18% increase over October 2016.  This could be as a result of the start of the warmer months.

Documents lodged at the titles office were virtually identical to the same month in 2015.

The number of sub-divisional lots created (1088) was a 11% decrease from the previous month but a 28% increase from November 2015.

THANE FINANCIAL PLANNING

The AUD currently sitting at 0.745 to the USD, has had a mixed performance over the past 3 months, largely influenced by the recent US election of Donald Trump, further Brexit concerns in Europe and parliamentary review in Italy.

During September, the AUD experienced a strong gain of 1.5% against the US dollar. This is largely due to both the increase in coal and oil prices further supporting the resources sector and modest activity in the US economy in anticipation of the US election.

October saw a mixed performance for the AUD, with a slight fall against the US Dollar as consumer spending increased and economic activity stabilising within the US Economy supporting the impending rate rise for the FED.

Following the US Election, November saw a record high surge in the US Share market amidst hopes of stronger economic growth and increased company profits in the US (in line with Trump policy), this saw a strong USD weigh heavy against the AUD causing a decline.

Source: Historical chart data provided by Commodity Systems, Inc. (CSI)

THANE PROPERTY

Some positive news on the horizon for investors as the rental market appears to be rationalise.

The year to September has seen some dramatic downward pressure on rental returns and upward pressure on vacancy rates, however the months following September has seen some stabilising of the rental market. The median return had fallen from $435 to $400 from September 2015 to the same period in 2016, however the median measure has moved to $405 for the following 2 months (quarterly figures yet to be released).

In line with this the number of listings measured 10, 707 in the September quarter this year in comparison to 8, 286 in for the same period last year. This rise reflects high vacancy rates. The follow 2 months sees some relief on listings at 10, 030. Whilst these numbers are still high, it is pleasing to see that the trend is also stabilising.

September 2015 September 2016
Median Rent (per week) $435.00 $400.00
Number of Listings 8,286 10,707

The above figures can be contributed to 2 main factors in the investment market:

Firstly, we are seeing the result of the government’s push to slow investment lending by capping the ratio of the banks investment book. This has forced banks to raise interest rates on investment loans and tighten policy around how they lend to investors. This has had an immediate impact on the supply of investment properties in the market and we are now see the supply figures fall to meet demand.

Secondly, some talk of interest rates rising from US government spending has slightly increased demand for rental properties as some potential purchasers become nervous of home ownership.

We are now seeing fair market value in the market as yields hover around the 3.5% mark and the cost of funds sit just under 4%.

We look forward to seeing the end of year figures to confirm these trends.

Source: September quarter figures and comparison to last year sourced from “REIWA Member survey 2016”

THE ECONOMY AT A GLANCE

Source: Reserve Bank of Australia. Released on 8 December 2016 (Data updated to 7 December 2016).

A NOTE FROM THE PRINCIPAL

Still some tough economic conditions ahead and whilst the figures are not great they are trending a little flatter than prior quarters. This could indicate that we are nearing the base of the cycle. If this is the case, then the next question would be just how long is the cycle likely to be.

The figures for the first half of next calendar year will be very “telling” and definitely worth watching.

Keep an eye on interest rates… as we have seen there has been upward pressure on them for the last month. Investment lending should continue to be tight, both points of which should lead to a further rationalisation of the rental market.

Real estate transactions should increase as the market becomes fair value and buyers and sellers come to terms with where prices should be, however there is no upward pressure on house prices.

The share market may have fewer global issues to deal with in 2017 and could prove to be more dependable if we consider the indicators carefully, notwithstanding the profit margins will again be challenging for most companies.

*Disclaimer: This newsletter and or its attachments or the content of the newsletter or attachments do not represent the views, intentions or advice of any business component of the Thane Group.

This newsletter and its attachments are not intended in any way to formulate any part of advice formal, personal or otherwise. 

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