Oliver's Insights: The rout in emerging markets – is it another Asian crisis?

The rout in emerging market currencies and assets is indicative of a turn in the long-term secular cycle away from them. While an Asian crisis re-run is unlikely, the rout could have further to go and the risks have risen. Countries with current account deficits such as Brazil, India and Indonesia are particularly vulnerable. Surplus countries like Korea and China are better placed.For investors this means being cautious regarding emerging market assets for now. It also adds to the vulnerability of the $A.
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ETF Securities: Have Gold and Silver Prices Already Discounted Fed Tapering?

Key points

• Gold and silver rise despite spike in US bond yields and stronger dollar.
• September - the best month for gold.
• Another record demand indicator - silver ETF holdings reach a new high.
• Increasing global GDP improves underlying support for PGMs.

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ETF Securities: Silver Surges 12% as US Stocks Stumble

Key points

• Positive precious metal sentiment shifts up a gear.
  
• Gold better priced than equities for Fed tapering?
  
• PM's rally despite India tightening restrictions.
  
• Gold futures in backwardation for longest period on record - highlighting strength of physical demand.
  
• PGM outlook improves, with platinum holding above US$1,500/oz.  

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Oliver's Insights: Australian housing – economic saviour or just another bubble?

Australian house prices have turned up at a time when they are still overvalued. However, there is no sign of a new property bubble.

The cyclical bounce in house prices likely has more to go, but the broad trend is likely to stay flat in real terms.

There are tentative signs of an acceleration in dwelling construction activity, which should help rebalance Australian economic growth over the year ahead.


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National Australia Bank Quarterly Australian Commercial Property Survey: Q2 2013

Sentiment in the commercial property market weakened notably in Q2 2013. The recent softening in economic conditions (and more subdued outlook for GDP growth) seem to have weighed most heavily in office and industrial markets, with retail unchanged (but very weak) and improving for CBD hotels. Sentiment fell most in Victoria (now the weakest state after SA/NT). WA is the only state where sentiment was positive (but also lower). Expectations for capital and rental growth softened in all markets. Fewer developers planning to start new projects in the near-term, with capital sourcing intentions also suggesting developers are uncertain about the future operating environment. Consumer confidence still the main challenge facing property businesses, but concerns about government regulation and financial economic/volatility have also risen.

• NAB Commercial Property Index fell to -16 points in Q2 (below long-term series average of -6 points). Overall index weighed down by notable fall in office and industrial. With weaker domestic economic conditions, the outlook for capital and income growth more measured in all markets. As a result, NAB Commercial Property Index now expected to rise more sedately to just +13 points by Q2’14 and +30 points in Q2’15 (well below outcomes reported in the last survey).
• Sentiment fell heavily in Victoria in Q2 but SA/NT the most downbeat state. WA the only state reporting positive sentiment (but lower). Sentiment improved in Queensland and NSW but negative state index readings suggest these markets are also sluggish. Market sentiment to remain negative in SA/NT and Victoria in the next year. NSW the strongest market in the next 2 years, with Victoria overtaking WA as the next best. 
• Capital values fell most for retail (-1.5%) in Q2, with values also down for industrial (-0.7%) and office (-0.5%) but up 0.3% for CBD hotels. CBD hotels to lead capital growth but pared back to 1.5% and 2.7% in the next 1-2 years. Property professionals also expect lower capital growth in both the office (0.9% and 2.5%) and industrial (0.5% and 1.6%) in the next 1-2 years. Average capital values for retail property tipped to fall -0.6% in next year and rise 0.3% in the next 2 years.
• Property professionals estimate gross rents fell in all markets in Q2 (at a faster rate than Q1). Rents fell most in retail (-2%). In the office and industrial markets, rents fell -1.2% and -0.9% respectively. Expectations for rental growth lowered in all markets. Office and retail rents now expected to fall -0.1% and -1.3% respectively in the next year, with industrial rents up a more modest 0.3%. In the next 2 years, rents expected to rise 1.2% in office, 1.1% in industrial and fall -0.3% in retail.
• Supply conditions in national office market softened in Q2, with the market now “somewhat over-supplied”. National retail market also “somewhat over-supplied”, but industrial and CBD hotel markets “neutral”. Vacancy rates fell slightly in industrial and retail markets in Q2 but increased in office. Vacancy rates forecast to rise in office and retail markets in the near-term.
• Fewer developers are planning to start new projects in the near-term, with the majority still seeking to develop residential projects although prospects improved most among retail developers. Debt and equity funding is still a problem for property developers, but conditions have been improving since late-2012. Developers’ capital sourcing intentions suggest growing uncertainty over the future operating environment. Consumer confidence remains the biggest challenge facing property businesses in the next 12 months, but concerns over government regulation and financial economic/volatility also higher.

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How long can Draghi’s bond-buying bluff hold? by Michael Collins, Investment Commentator at Fidelity

Capitalist banking systems are built on the confidence trick that people can get their money back at any time. Of course, if everyone sought their money at once, no one would get anything because the financial system would collapse.

The eurozone is being held together by a more-fragile bluff. This is the European Central Bank’s “outright monetary transactions” scheme that was announced in September last year. The scheme pledges to buy unlimited amounts of bonds of distressed sovereigns,¹ a plan that was enacted by Mario Draghi to back up his comments two months earlier that the ECB would “do whatever it takes” to save the euro.

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Silver Shines on Optimistic Sentiment Shift - ETF Securities report

Key points

• Precious metals increasingly pricing in potential for tapering of Fed bond buying.
  
• US physical coin demand hits record level.
  
• Platinum Group Metal (PGM) markets remain tight.

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PGMs Update - Platinum: In Need Of A Catalyst

Summary

PGMs have begun the third quarter on a positive note, paring some of the losses sustained in the April precious metal slump. Despite having reached a two-year high vs the gold price, platinum is currently trading at an eleven-year low compared to the palladium price. While supply-side dynamics are price-supportive for both platinum and palladium, in the near term demand drivers are likely to favour palladium, which is more exposed to the strong growth of the US and Chinese auto sectors. 

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The Australian election and investors By Dr. Shane Oliver, Head of Investment Strategy and Chief Economist

Historically election campaigns result in a period of flatlining for the Australian share market, followed by a bounce once the election is out of the way.

The likely end to three years of minority Government should be taken favourably by markets as it will likely result in more certain policy making.



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The world turns – from emerging to developing markets by Shane Oliver, Head of Investment Strategy & Chief Economist

Key Points

• The world is turning. While the US, Japan and Europe are starting to look brighter the emerging world led by China, India, Brazil & Russia is looking a bit less bright.
• This is seeing the long term secular cycle in investment markets move in favour of traditional global shares relative to emerging markets and Australian shares, and will work against commodities and currencies like the $A.

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Upside potential for silver as fundamental and technical indicators align, Weekly Report from ETF Securities Research

Key points

• Technical indicators signal potential upside for silver.
  
• Gold supply constraints could provide support despite unfavourable macro environment.
  
• Weak South African Rand helps to constrain platinum price gains.

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Silver Shines as Gold:Silver Ratio at 3-Yr High Attracts Investors - Precious Metals Weekly report by ETF Securities

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Australian Gold Equities - Sifting through the ashes by Macquarie Research

Event

• Following a torrid three and half months which has seen the gold price fall from US$1,600/oz on 1 April to its current level of US$1,320/oz (having reached as low as US$1,180/oz on 28 June 2013), gold equities have suffered significant falls.
• While we believe that the commodity has potentially found a floor, we are focussed on the balance sheets for the gold equities as they come to terms with the new operating conditions.
• Forward curve update (See Fig 2.) We have updated our commodity forward price curves upon which we base our valuations. Since our last update (25 April) the Long Term forward gold price has decreased ~6%. Our target prices continue to be based on our net asset values derived utilising the prevailing forward curve prices. On average, the impact of the lower forward curve is a 20% decrease in our target prices (range of 0% to -60%).

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August Issue of S&P/ASX 200 Earnings Report

Key Highlights this month:

·         10 companies in the S&P/ASX 200 have reported earnings thus far for FY 2013. 50% have reported earnings better than street expectations, polled by Capital IQ analysts.  Collectively, the S&P/ASX 200 has reported a 1.3% EPS surprise.

·         Last year, 40% of all companies in the S&P/ASX200 had beaten earnings street expectations.

·         Of those companies who have announced earnings, only one has shown double digit or better Y/Y growth.

·         Companies still remaining to report with the largest expected earnings growth for FY 2013 include, Independence Group NL (ASX:IGO) +862.4%, Bank of Queensland Ltd. (ASX:BOQ) +856.2%, and Senex Energy Limited (ASX:SXY) +275.3%. 

·        Companies still remaining to report with the most upward revisions for FY 2013 in the past month include Flight Centre Ltd. (ASX:FLT) 14 upward revisions, Oil Search Limited(ASX:OSH) 10 upward revisions, and Fortescue Metals Group Limited (ASX:FMG) 10 upward revisions. 

·         Companies still remaining to report with the largest FY 2013 EPS% change in the past month include Alacer Gold Corp. (ASX:AQG) +101.0%, Magellan Financial Group (ASX:MFG) +40.8% and Silver Lake Resources Limited (ASX:SLR) +27.4%.     

·         Companies with the greatest potential upside based on S&P Capital IQ consensus target price include, Discovery Metals Ltd. (ASX:DM) +262.5%, Sundance Resources Limited (ASX:SDL) +258.0%,  and Mineral Deposits Ltd (ASX:MDL)+132.6% (*data as of 7/30/13).

·         128 companies are expected to report annual earnings in August.

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