CEO Insights - Week Ending Friday 19/08/16

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.

Australian Property

“It would take a lot of overbuilding, or a collapse in the economy, or a rise in interest rates, to turn this market. Normally they all happen together, but I cannot see that happening in the next five years”

Mark Steinert, MD, Stockland

“There is capacity for further cap rate tightening in certain markets around the world, and in Australia, it looks like we're in for a few more rate cuts. So good quality customers and good buildings and good markets, you could expect that the cap rates are still going to compress”

Gregory Goodman, CEO, Goodman Group

“Real estate pricing is in a bubble, close to previous cyclical peaks; however, yields remain well above long-term bonds. Solid underlying property fundamentals, coupled with a lower for longer interest rate outlook will, in our view, continue to underpin asset values and investment demand”

Bob Johnston, CEO, GPT Group

“In Australia, we expect standalone housing construction in the Eastern states to remain steady at current levels, but expect apartment construction to start to ease”

Mark Adamson, CEO, Fletcher Building

“The residential construction markets were the bright spot across the industry. The Western Australian new housing market weakened considerably during the year”

Mark Adamson, CEO, Fletcher Building

“As we've been forecasting for some time now, we expect conditions to remain soft in WA, volumes to remain around the current low levels and there to be further price declines”

Andrew Whitson, Group Executive & CEO Residential, Stockland

Healthcare

“The long-term drivers of healthcare remain very positive. There is strong underlying demand for healthcare in Australia, underpinned by a growing and ageing population, increasing chronic and complex conditions, rising patient expectations and expanding wealth per capita”

Peter Gregg, CEO, Primary Health Care

“The ageing of the population we see flowing through in our numbers, the average baby-boomer is now just over 60. So, there's 10 years, 20 years of aging of population to benefit companies in the healthcare space and particularly in the lab space where we're talking preventative medicine and chronic disease management”

Colin Goldschmidt, CEO, Sonic Healthcare

Commodities

“Coal markets, after five years of declining prices, appear to have found a bottom in the first quarter of CY2016. Several reasons for the increase in prices include mine closures in Indonesia, United States and Australia and policy change by Chinese authorities to limit coal production to 276 days per year. This policy change has the effect of cutting production in China by about 16 per cent”

Whitehaven Coal, CEO, Paul Flynn

“China is not number one nor number two in either met or thermal coal destination for Australian producers”

Lance Hockridge, MD, Aurizon Holdings

“We've seen increasing stabilization in both the volumes and in the sentiment associated with coal, but the Australian share of the seaborne market in both met and thermal is at a strong level. As we had been anticipating, we have seen the rundown in uneconomic volumes. We've also seen reductions out of both the U.S. and Indonesia. However, the challenges remain, and will remain in front of us over the next year or two”

Lance Hockridge, MD, Aurizon Holdings

“We’re particularly positive about the outlook for oil and copper, and that's because field and grade decline drive the sharpest reduction in base supply, and they pull the markets back into balance more quickly than other commodities”

Andrew Mackenzie, CEO, BHP

Domestic Economy

“Here in Australia, we saw a reasonably strong May-June and the election certainly put a damper on things and we're waiting to see things starting to pick up again”

Nigel Garrad, CEO, Orora

“We didn't see any significant drop-off as a result of the election”

Rowen Bruce Craigie, CEO, Crown Resorts

“Despite the macro headlines which are pretty mixed our view for the Australian economy and for our business is for reasonable growth to continue”

Mark Steinert, MD, Stockland

“The level of population growth is high, even though it has come off from the mining boom. Everything you were worried about in the world is why people want to come to Australia”

Mark Steinert, MD, Stockland

Global Economy

“Let me reiterate that the U.S. economy is not as strong as we thought it might have been six months ago”

Nigel Garrad, CEO, Orora

“Housing conditions in the U.S. continue to improve to kind of a steady rate, and we're continuing to forecast U.S. housing starts on the new construction side of 1.2 million to 1.3 million”

Matthew Marsh, CFO, James Hardie

“Weather has been hot this summer and has contributed to the strong apparel sales and perhaps more shopping in general as a way to avoid the heat”

Karen Hoguet, CFO, Macy’s

“The regions most challenged by negative traffic were the Benelux region, France and the UK, which we attribute to the uncertainty among consumers around Brexit and the decline in tourism resulting from terrorist attacks in France”

John Idol, Chairman & CEO, Michael Kors

“Longer term, despite lower than expected growth than this time last year in the developed world, we are confident that as China and other emerging economies, particularly the high population centres of India and countries of Southeast Asia, start to, and then successfully navigate the various stages of economic development, that the demand for our commodities will continue and, actually, increase”

Andrew Mackenzie, CEO, BHP

“Major central banks are likely to maintain extremely accommodative monetary policy for the foreseeable future, keeping bond yields anchored at low levels for longer”

John Neal, CEO, QBE Insurance

Other

“The watch industry remains challenged overall, in both the fashion and luxury segment” John Idol, Chairman & CEO, Michael Kors

“We believe the Internet-of-things is an important opportunity that will bring about the next wave of disruption”

Daniel Zhang, Executive Vice Chairman, Alibaba Group

“The mobile monetization rates has surpassed the PCs for the first time”

Maggie Wu, CFO, Alibaba Group

Article contributed by NAOS Asset Management: (VIEW LINK)


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