Market Review
The final quarter for the 2013 / 2014 financial year was flat with the ASX/200 closing at 5,395.70 on 30 June 2014. The ASX/200 finished the previous quarter (31/03/2014) at 5,394.80 which is a gain of only 0.9 points. Similarly the ASX/200 started the calendar year at 5,352.20, so calendar year to date the market is up 43.5 points or 0.81%.
But it’s not all bad news with the first half of the financial year very strong (up 549.60 points or 11.44%) bringing the 2013/14 return of the ASX/200 to 593.10 points or 12.35% which is a great result and a continuation on from last financial years’ double digit returns.
Stock News
Telstra
Telstra is understood to have spent between $40 million and $60 million to buy into SNP Security’s back-to-base alarm and security camera business.
The deal will see Telstra and SNP, which is Australia’s third-largest security company, form a new subsidiary called TelstraSNP Monitoring that will provide customers with monitored security.
Telstra said it was also investigating the possibility of giving customers the ability to watch their pets at home via video cameras.
“The market for back-to-base alarms in Australia is potentially very large because a lot of businesses use them but only to a smaller degree than we think is possible,” he said. “There’s phenomenal growth in video technology and the ability to do analytics on video plus a whole range of other monitoring and telemetry”.
Woodside
Woodside Petroleum, after Shell announced it would decrease its shareholding by 19% of the total Woodside shares on issue, has taken a multi-billion-dollar bet to insulate itself from the increased volatility in rapidly evolving global liquefied natural gas (LNG) markets and remake its strategy after a series of abandoned investments, becoming the first Australian company to buy LNG out of Texas.
Woodside will pay more than $400 million a year for at least 20 years to secure 850,000 tonnes of LNG from Cheniere Energy’s Corpus Christi plant in Texas as part of a strong push to beef up its LNG marketing and trading arm.
Experts said the deal would allow Woodside to bring greater flexibility to its negotiations with LNG customers at a time when new sources of gas supplies are challenging the LNG industry’s long-held pricing dynamics.
2013/2014 Year In Review
For the 2013 / 14 financial year the five biggest banks, BHP Billiton and Telstra led the market. QBE Insurance Group, Coca-Cola Amatil and GrainCorp were the heaviest laggards.
The Australian dollar finished 2% higher after tracking in a band between a high of US97.08¢ in October and a low of US86.84¢ in January.
Below is a graph that highlights the key events of fiscal 2014, alongside the mark they made on the S&P/ASX 200 index.
Recovering from the GFC?
The Australian Stock market is still trading significantly below the highs of November 2007 before the GFC occurred. This is surprising when compared to other overseas indexes which are trading at record highs well in excess of pre GFC days. The table below highlights that our market has the Australian ASX200 still 24% below the November 2007 market peak, whereas the US S&P500 index is now 21% above its pre-GFC October 2007 peak:
Economic Update
The Reserve Bank of Australia again kept the cash rate on hold at 2.5%. We believe we are well into a period of stability where interest rates are concerned and cannot foresee rate increases in the near-term.
Our dollar is still stronger than expected, with the majority opinion being that it is overvalued. Most economists and the banks are tipping that we will see a steady fall until year-end and further decline in 2015. The RBA is determined to see the dollar fall to improve economic conditions now that the mining investment boom has faded.
Unemployment fell 0.2% over the quarter to come in at 5.8%. The figures indicate that employers, on average, are more prepared to commit to full-time work arrangements as 22,200 full-time jobs were created but 27,000 part-time jobs were lost.
Job vacancies have increased 2.1%; however people are still concerned about long term employment prospects and the impact of the most recent budget. This can be seen in the consumer confidence index which shows a fall from 99.5 points at the end of last quarter to 93.2 or down 6.33%.
Australia’s GDP rose 1.1% for the quarter, seeing growth of 3.5% for the year – good results so far! The RBA expects our GDP growth to be slow but steady over the coming months and into 2015 and 2016, illustrated in the table below:
Property Highlights
Property prices have ended the financial year on a high with the latest figures revealing a 10.1% increase over the last 12 months on average across the nation.
The RP Data-Rismark June Hedonic Home Value Index results revealed that values increased another 1.4% in June. Sydney and Melbourne led the charge and Adelaide and Darwin were the only capital cities to experience a drop in values over the month of June.
We expect the housing market to remain strong. As interest rates remain at record lows, this will see house prices continue to move higher, although at a slower pace going forward.
The official figures released by the Australian Bureau of Statistics detailing residential property price growth is detailed below.
May 2014 dwelling approvals
Over the 12 months to May 2014, there were 191,088 total dwelling approvals, 107,291 of which were for houses and 83,799 which were for units. The annual number of dwelling approvals is at their highest level since there were 192,614 dwelling approvals over the 12 months to December 1994. It does however need to be noted that the rebound in dwelling approvals is strong and much needed after years of insufficient supply being built.
Total dwelling approvals in May were 14.3% higher than a year ago with house approvals 14.0% higher and unit approvals 14.5% higher.
Focusing on the capital cities, it is encouraging that there has been a significant rise in dwelling approvals across these areas where supply issues are generally most dire. The annual number of capital city house approvals as at May 2014 was 19.6% higher than over the corresponding 12 month period in 2013. Capital city house approvals are at their highest level since the 12 months to February 2011 when 69,524 houses were approved. Capital city unit approvals are 23.4% higher than they were a year earlier and are only slightly lower than their record high level of 73,835 unit approvals over the 12 months to March 2014.
Across individual capital cities the annual number of dwelling approvals is higher across each city except for Darwin. The greatest annual lift in dwelling approvals has been recorded in Brisbane and Sydney.
The May dwelling approvals data showed an encouraging rebound following three consecutive monthly falls. Keep in mind that RBA Governor Glenn Stevens wants to see higher construction levels over the next few years and that will be the real challenge. If consumer sentiment continues to languish and if and when home value growth slows there will be much less certainty around the viability of new residential developments. Maintaining high levels of new residential approvals (and construction) over the next few years will be no easy feat to achieve.
Capital City Auction Numbers (week ended 29th June 2014)
A preliminary weighted average clearance rate of 68.1% was recorded across capital cities compared to 65.4% on the previous week and 66.9% this time last week.
Based on the auctions conducted in the first six months of this year volumes have risen by an incredible 38% since 2013. More people are selling homes by auction and this is a sign of a market that is performing well and delivering results for sellers and buyers.
There are 2,169 auctions scheduled across Australia this week across 1,137 different suburbs or towns. In capital cities there are 1,769 auctions expected compared to 1,572 to the same period last year.
To put this into perspective, Sydney’s auction rates saw a low of around 48% (4 week average) in January 2012 and peaked at 82% (4 week average) in March 2014. At Sydney’s current 4 week average rate of around 75%, we are around 7% below the peak and around 27% above the 5 year low.
The overall national auction market is displaying a very consistent performance right now with stable clearance rates.
The below table illustrates the variation in auction clearance rates across our major cities over the past 5 years. As you can see, the weighted average clearance rate at present is around double what it was in January 2012.
