Smack!
US stocks got hit on Friday, and the follow on kept driving our market down yesterday.
Personally I view the underlying economies of the US and Australia as fundamentally strong. But the stock market is a different dynamic — and volatile.
Should you be worried? Well it depends on what sort of investor you are, and your strategy.
But in general, I think Greg Canavan said it best in a note he sent out to readers of Crisis & Opportunity yesterday…
‘When the market is like this, there is a tendency to become emotional in your decision making. In the same way that it’s wrong to panic buy, thinking the market will only go up, it’s wrong to panic sell on the belief that the market will keep heading lower.
‘The truth is, no one knows. Stick to your strategy and observe your stop loss levels.’
I have more from Greg below, but first…
Why Sydney property is ‘cheap’
There are a lot of things said about Sydney. But have you ever heard anyone describe its real estate as cheap?
Well, I did last week when I spoke to a consultant and researcher based in China, Shaun Rein. He’s also the author of two books on China. He deals with a lot of wealthy Chinese businessmen.
And he told me that for them, Sydney is cheap. That’s because real estate prices in Shanghai and Beijing at the top level can hit $20,000 to $30,000 a square foot. Even US$3 million doesn’t get you into the best part of town.
In the US and Australia it can get you a mansion on the beach.
Not only is Sydney priced OK for China’s rich, it has a thing that’s pretty rare in the big cities of China these days: blue sky.
That’s because the pollution in China is so bad it’s toxic. The air in China’s mega cities is so rancid it’s breaking world records. ‘Smog days’ are declared to keep kids from going outside, or to school.
It’s driving wealthy Chinese buyers to put their families out of harm’s way. That means buying here. And Chinese pollution is a problem, according to Shaun, that will take 10–15 years to solve.
So don’t expect the money to slow down anytime soon. We’re not the only one with the problem here. The same is happening in New Zealand.
Bloomberghad this last week:
‘“Five years ago I would have estimated two or three percent of Auckland properties were bought from overseas,” said Peter Thompson, managing director of Barfoot & Thompson, which says it sells one-in-three homes in the so-called City of Sails. “These days it’s 10 or 12 percent.’
And the falling Kiwi and Australian dollars only exacerbate the problem.
Bloombergreported last week that real estate prices in Auckland are up 20% this year. Here’s the catch if you are a local buyer: there’s really no change in the price for those buying from overseas, because the New Zealand dollar is down at the same time.
But there’s more to this story…
Are you watching this sector?
What’s interesting is the report yesterday from the Australian Financial Review where we can see the merger of two trends worth tracking. First is the foreign money coming into Australian real estate. The second is the bright outlook for agriculture to feed China’s growing middle class.
The paper says that Chinese retail and supermarket giant Dashang Group has spent close to $50 million buying rural property here. This is as it expands towards its goal of becoming the lead importer of Australian beef into China.
Food security is one of the Chinese consumer’s top priorities. Countries like Australia offer trustworthy supply chain management systems and high standards of animal and product care.
But it’s not only the Chinese supermarket making moves here. Last week came the news that First State Super made its first agricultural investment in Australia to the tune of $150 billion. It bought almond plantations across three states from Select Harvests. First State will lease the land back to Select Harvests.
Then yesterday the AFR reported that First State’s chief investment officer, Richard Brandweiner, said the super fund, ‘First State would continue to assess opportunities in the agriculture sector as they came forward.’
To give you the scale of the possible shift, Australia’s super funds only have about 0.3% of their investments in the ag sector, according to accounting group BDO.
Greg Canavan’s readers won’t be surprised by this. He foreshadowed these moves back in December last year.
He wrote at the time:
‘The Australian agricultural industry should benefit from the emergence of a larger Asian middle class in the years ahead. This could be a secular change, resulting in billions of dollars of new investment in the industry, of which XXX will be a beneficiary….
‘The mainstream media and others have made much of the fact that the ‘mining boom will give way to the food boom, making agricultural investments the next big thing.
‘But it’s not as simple as that. The industry requires billions of dollars of
investment to improve productivity (increase yields, create more efficient
supply chains, etc.) for that to happen.
‘And that takes time.
‘Having said that, it is still an attractive sector, given its strategic nature.
People need to eat and countries want to secure reliable food supplies. And
they will pay for the privilege to do so.
‘Another boost for the industry is the decline in the dollar. A falling dollar
makes Australia’s agricultural products more competitive on a global scale and helps offset any price falls that might occur in US dollar based commodities, like wheat or beef cattle.’
Apologies for blacking out the stock at the top there, but I’m not at liberty to reveal that. What IS interesting about that stock is that it’s a perfect example of his new fusion method of finding good stocks. Greg combines his fundamental analysis with the technical analysis of Quant Trader’s Jason McIntosh.
That particular stock is up nearly 80% since Greg tipped it. For more on Greg’s new method, click here.
Cheers,
Callum Newman,
Associate Editor, Cycles, Trends & Forecasts
From the Port Phillip Publishing Library
Special Report: Nitro Stocks Completely unknown to most Aussie investors, there is a special type of ASX investment that can generate more cash in a week than most people earn in a year! They’re called ‘Nitro stocks’ and they can cram 20 or 30 years of market profits into just a few months. Sam Volkering says, ‘It’s like taking a slow-moving bluechip and pumping it full of steroids!’ Sam’s spotted three stocks on the verge of hitting their ‘Nitro-phase’. And if you want in, you’d better hurry!
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