CEO Insights - Week Ending Friday 12/08/16

NAOS Asset Management

As part of the NAOS investment process, we pay particular attention to the comments made by company CEO’s and business leaders in order to gain a greater understanding of the current investment environment and key trends that may be emerging. Below are quotes from the week which in our view detail some of the most important and prominent industry trends and economic factors impacting their businesses.

Property

“If growth in housing demand does not continue to keep pace with the further large increases in supply already in the pipeline, it could place downward pressure on property prices and rents and increase the risk that off-the-plan purchases fail to settle”

RBA Statement

“At this point in the property cycle and the macroeconomic cycle, we strongly believe we're better to have low gearing because opportunities will come down the track”

Michael Wedgwood, MD, BWP Trust

“…We're looking at everything at the moment, but at current pricing, we just can't make the numbers add up”

Michael Wedgwood, MD, BWP Trust

“We expect demand for Warehouse properties to remain very strong while interest rates remain low”

Michael Wedgwood, MD, BWP Trust

“New real estate listings in higher value markets in Sydney and Melbourne in July were unusually weak”

Greg Hywood, CEO, Fairfax

Media

“Advertising trends remain volatile and visibility continues to be limited... A lot of advertisers are questioning the return on investment”

Bedi Singh, CFO, News Corp

Banking

“Regulation continues to be increasing both in terms of capital requirements but also the compliance burden”

Michael Hirst, MD, Bendigo & Adelaide Bank

“… our job is to balance the interests of borrowers who would prefer to pay less with depositors who would prefer to earn more interest with shareholders who are looking for some degree of stability on the dividend. Economic stimulus occurs when all those things can happen to the maximum extent possible”

Ian Narev, CEO, Commonwealth Bank

Agriculture

“On the asset side, we've seen good growth in the second half through the rural bank and rural finance and in business banking generally”

Michael Hirst, MD, Bendigo & Adelaide Bank

Domestic Economy

“We can continue to see pretty strong economic foundations when you look at Australia through the lens of real GDP growth and pretty stable employment. And again against global benchmarks, the position of the Australian economy remains favoured. But nominal growth in this environment of weaker terms of trade remains weak and we are seeing examples of a global phenomenon where fragility in the global economy, and concerns about the global geopolitical environment creates a lack of confidence, which monetary stimulus cannot fully offset. So, we're expecting over the next 12 months pretty much an economy that feels like more of the same, but we do see risks to the downside if levels of confidence, driven by external events go, lowerer”

Ian Narev, CEO, Commonwealth Bank

“Traditionally, there hasn't been a lot of money going to deposits beyond 12 months. But, of course, we haven't been in these low level environments before. So, as returns fall, for particularly self-funded retirees, it will be, I think, an open question about whether or not they're prepared to lock their money away for the longer-term”

Michael Hirst, MD, Bendigo & Adelaide Bank

“Institutional activity has remained subdued leading to lower markets-related income and a decline in fees from debt markets activities”

Westpac Announcement

“Business lending was up 6% and underlying this result was strong growth in construction lending. However, demand for credit outside the construction centre, in particular in services, healthcare, aged care, and agriculture are starting to see some activity picking up”

Ian Narev, CEO, Commonwealth Bank

“There is considerable uncertainty about the outlook for the labour market”

RBA Announcement

Energy Markets

“Energy, utilities and mining in Australia has been in a world of pain over the last three, four years as the industry stopped. However, we're seeing terrific regeneration to that slice of the market”

Luke Sayers, MD, PwC Australia

“We are continuing to see a flattening of electricity demand after several years of decline”

Andrew Vesey, MD, AGL Limited

“We believe that the long-term wholesale prices will continue to strengthen across the National Electricity Market. However, the trends we have observed recently reflect the rate of increase greater than that which we considered to be sustainable over the long-term”

Andrew Vesey, MD, AGL Limited

Financial Markets

“Asset prices are full today. I don't think we're in a bubble. But I view them as on 'the high side of fair' which means nothing is a bargain – nothing is available at laughably cheap prices”

Howard Marks, Founder, Oaktree Capital

“It's intense, widespread research that makes markets efficient. When more money goes into passive funds over active, less fundamental research is done. Eventually this should cause the scope of bargains to increase, so I wouldn't be pessimistic ... only in the short term"

Howard Marks, Founder, Oaktree Capital

“Although the industry is experiencing challenging markets, flows, and conditions in recent times, the industry fundamentals remain extremely positive”

Chris Kelaher, MD, IOOF

Other

“This is going to be their fifth incarnation as a brand in the market and I don’t know if I see them overcoming the challenges they have had to tackle in last four incarnations. News Corp is a pretty big, powerful company and the fact that they are exiting is probably a net positive”

Greg Roebuck, CEO, Carsales

"Do businesses respond to interest rates being lowered in investment? They never did. In my thinking about how monetary policy works, I've never thought that there's going to be that much effect from boards of directors saying, "hey look, the cash rates gone down 25 basis points, let's do that project"

Glenn Stevens, Governor, RBA

Article contributed by NAOS Asset Management: (VIEW LINK)


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