Quarterly Newsletter - April 09

Major Indices   (as of 31/03/09)

 
Currency
(AUD)
Interest Rate(%)
Share Index
* PE ratio
(historical)
GDP (%) 2008
GDP Forecast (2009) IMF
Population
(m=million)
Foreign Surplus (Debt) %GDP
Australia
1.00
3.25
All Ords
3,532
9.04
2.7
-1.5
21m
(5.0)
USA (Dollar)
0.69
0.25
S&P 500
787
13.18
2.2
-2.8
300m
(6.5)
Largest dollar deficit, 10 trillion USD and growing rapidly
Japan (Yen)
67
0.10
Nikkei 225
8,135
14.82
1.9
-6.2
127m (declining)
2007 - USD 875 billion 2nd largest dollar surplus
China (Yuan)
4.69
5.31
CSI 300
2,492
Hang Seng
13,496
Mainland China
11.62
Hong Kong
10.53
9.0
6.5
1,350m
2008- USD 2 Trillion, number 1 largest surplus in the world
India (Rupee)
35
5.50
BSE 200
1,130
11
8.9
4.5
1,150m
Europe (Euro)
0.52
1.50
DJ Stoxx 50
2,010
10.59
2.6
-3.2
725m (declining)
 
UK (pound)
0.48
0.50
FTSE 100
3,762
11.19
3.1
-4.1
60m
 
Global
N/A
 
 
10.39
-1.3
6,000m
 

* PE ratios (based on historical earnings)
US 10 Yr Bond Rate – 2.75%    US 30 Yr Bond Rate – 3.50%
Source: Bloomberg

Commodities

Oil - Nymex (USD/barrel) 48
Natural Gas (per million m btu) 3.80
Coal-thermal ($/tonne) 81
Uranium (USD/pound) 42
Gold (USD/ounce) 922
Wheat (cents/bushel) 515
 
Iron Ore (cents/dmtu) 140.6
~$68/tonne spot price
Copper (USD/pound) 1.78
Nickel (USD/pound) 4.26
Zinc (USD/pound) 0.58
Aluminium (USD/pound) 0.62
Corn (cents/bushel) 386
  [www.kitco.com]
Source : Kitco, quotemarkets

Commentary – Past 3 months

Third Quarter 08/09 financial year saw share markets globally stabilize after the carnage of the last quarter. This would likely suggest the forced selling of hedge funds etc is over and that the markets have formed a base ready for some recovery in late 2009 or 2010.

The real economy is still just feeling the effects of global recession and global industrial production and growth is expected to remain weak for most of 2009. In fact most developed economies are expected to post significant negative growth in 2009 and to have a massive 5% reduction in previous growth levels (see graph below).

This is largely due to the global collapse in confidence in the wake of the global financial crisis and subsequent rise in global unemployment. Unfortunately a negative cycle ensues each time a job is lost, spending decreases, companies cut back on staff etc.

World governments have continued to act to boost their economies including the latest USD 1 trillion Obama ‘Toxic Assets Plan” to absorb the banks toxic loans. The share markets have welcomed these moves and have risen around 20% from their lows in the past month.

Previous stimulus packages have included;

  • The Chinese Stimulus Package was announced and included USD 586,000,000,000 (586 Billion dollars) to be spent in 2009, and 2010 mostly towards infrastructure projects.
  • Additionally the Chinese have slashed interest rates down to 5.58%.
  • The US Stimulus Package presented by Barack Obama included an estimated USD 500 billion plus package targeting infrastructure projects.
  • This followed the Paulson Plan of USD 700 billion to recapitalize the US financial system.
  • Global Interest Rates have continued to fall and in the USA are now at 0.25% and have dropped 5% within 2 years.


The best performing sector for the past 3 months were isolated share markets such as Japan.

Currencies over the quarter were summarized by a stabilization of those currencies such as the Australian Dollar which had collapsed in the previous quarter.

Commodities
Oil along with most commodities stabilized this past quarter, and in some cases such as Copper a moderate increase occurred. Oil prices remained at USD 48 per barrel, alleviating global inflation concerns.


Commentary – Forecast next 6 months

A combination of massive fiscal (government spending) and monetary stimulus (interest rate cuts) by world Governments will begin to kick start the economies of the world, especially the Chinese economy, and the Infrastructure Sector.

The key indicators of recovery have started to recover, albeit slowly.

The credit spreads are improving, US house prices are arguably stabilizing, and the Baltic Dry Index has started to recover. (See graph below). Note the strong correlation of the shipping activity (Baltic Dry Index) to the US (S&P 500) share market performance.

On the flip side unemployment is still increasing and poses the greatest risk to global recovery.

Investors that hold significant cash should begin to phase back into the share markets especially given the falling cash rate and excellent valuations in some areas of the share market. The phasing could be over 6 to12 months as full recovery is still some time away, and it would be wise to follow the Baltic Dry Index to see if recovery is occurring.

As previously stated it would be wise to concentrate on quality assets, with low debt levels that can benefit from the recovery.

Baltic Exchange Dry Index (BDI) & SP500

What to do?

Continue to be cautious.

  • Long term buyers should slowly accumulate quality assets upon share price weakness as it is possible we have now passed the worst of the share market falls.
  • Avoid US currency, and be cautious still on US shares as they are not particularly cheap.
  • Invest in countries with currency surpluses.
  • Be cautious on Resources as commodity prices have collapsed
  • Increase exposure to shares generally.
  • Increase exposure to the Infrastructure and Commercial Property sector.
  • Keep some Cash, and consider phasing back into the market. It is important to note that the cash rate is falling and cash returns are likely to be a lot lower than last year.
  • Be cautious or don’t buy Australian residential property as it is still overvalued
  • Be aware that the Aussie dollar is particularly low at present which makes it more expensive to buy overseas assets.

Australian Commercial Property Prices

The Australian Listed Property Sector is currently trading on a PE ratio of only 4.55 (very cheap!!) with a sector yield of 19%pa.This sector is still an outstanding buy opportunity, provided you stick to quality assets.

Infrastructure Boom

The massive Government stimulus packages are directed towards the Infrastructure sector. This massive stimulus to one sector is likely to create the next boom – “the Infrastructure Boom”.

Buying the companies that build the infrastructure will be the most profitable for investors. The construction companies, the engineering firms, and those companies involved in road, rail and bridge construction particularly in China.

New Products

CBA Capital Series II

This Capital Protected structured product from CBA allows you to borrow 100% (variable rate 7.4%pa, fixed 8.6%pa) and gain exposure to the ASX 200 (the top 200 Australian shares). The 80% protection Strategy (2) allows you unlimited upside, and is a great way for those without cash and ability to pay the tax deductible interest costs, exposure to the Australian Share market, especially while it is such good value.

The offer closes June 3 and has a minimum investment (borrowing) amount of $10,000.

This product is highly recommended. Please contact us if you require a prospectus.


Port Barton Palawan Philippines Apartments soon to be released for sale

Palawan Philippines is ear marked as the next Phuket and with the new International Airport at San Vicente due for completion by end 2010, there will be a flood of tourists and investors discovering this island paradise. Just last week Banyan Tree Developments (a pioneer Phuket developer) announced a new 55 Ha master planned resort for Palawan, a sure sign of things to come. This comes on top of a Chinese developer currently building a 100 room Resort and Conference Centre in Sabang.

Due to be released in late 2009 by Palawan Last Frontier Land Corporation (controlled by Matthew Bohlsen), 2 bedroom 100sqm apartments expect to sell off the plan for around 5m Pesos (around $150,000 AUD) and 1 bedroom apartments for around 3m Pesos (around $90,000 AUD). Most units will have spectacular views of the Port Barton Bay as the 2.8 Ha resort is elevated land on the northern headland (see picture below showing the headland site) just 30 m from the beach. There will be full resort facilities within the 150 apartment complex including a 50m Olympic size pool, kid’s pool, Spa, Hotel, Gymnasium, Restaurant, Bar, Tennis Court and Internet facilities.

Palawan is an island paradise within 3 hours flight from many rich countries such as China, South Korea, Japan, Singapore, and Hong Kong and will not stay undeveloped and cheap for much longer.

If you are interested please get your name(s) onto our list so that you can get first choice of apartments and get in early before the boom. My expectation is that apartment prices will double each 5 years for many years to come as Palawan is discovered.

Port Barton Beach and Headland

Port Barton location map

 

 

To find out more please contact an adviser at contactus@hnwfinancialadvising.com.au or phone 0430-218110 to speak to an advisor.

 

NB : High Net Worth Financial Advising attempts to enhance overall return for clients by investing in undervalued regions of the world and undervalued asset classes, that have positive growth stories.

NB : The contents of this newsletter does not constitute personal advice and is general in nature, please see your adviser for personal advice suitable to your own needs and objectives.