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.

Banking

“My basic hypothesis is that I think the four banks are in great shape, and the financial system in Australia is in really strong shape, I certainly don't think we have any vulnerability there in aggregate. I do think that the big four banks are in a difficult part of the cycle.”

Robert Whitfield, Former Head of Institutional Banking, Westpac

“I don't think we are going to see the big four banks returning 15 percent return on equity that a couple of the CEOs are still hanging on to – I don't see that as sustainable over the next five to 10 years.”

Robert Whitfield, Former Head of Institutional Banking, Westpac

“Bank lending growth of 4.5% was achieved while maintaining credit quality and margin.”

Michael Cameron, CEO, Suncorp Group

Housing

“The current lending being done has reduced LVR overall. We especially see a reduction in the greater then 90% LVR space. This is pushing down the average loan-to-value written from approximately 87% in 2014 to 83% in 2016 and is impacting gross written premium overall.”

Georgette Nicholas, CEO, Genworth Australia

“On house prices, some healthy moderation in the pace of house price depreciation is occurring after periods of strong growth in Sydney and Melbourne. Year-over-year prices in those cities are up approximately 10% to 11% while Brisbane is up 5%, and Perth is down around 5%. In those areas impacted by the slowdown in resource sector, though, we have seen further house price decline, and we anticipate that those areas will continue to feel pressured in 2016. Overall, we continue to remain cautious about the 2016 outlook given the dynamic environment.”

Georgette Nicholas, CEO, Genworth Australia

Domestic Economy

“Australia is in an environment where we've got low inflation, low interest rates, low wages growth and low levels of business investment. This is a really big challenge for the country – and that's not just true in Australia, it's true all around the world.”

Scott Morrison, Treasurer

“We continue to believe that wage inflation will be around 4% over the longer term, and our assumptions will step back to that level in FY19.”

Steve Johnston, CFO, Suncorp Group

“The demand in both the commercial and industrial sector in Australia is pretty tough at the moment, and the order pipeline is low.”

Jonathan Ling, CEO, GUD Holdings

“We increased prices in the retail and hardware sector in the first quarter of FY16, and we expect the same this year. However, getting price increases in the supermarkets and the hardware chains at the moment is pretty tough.”

Jonathan Ling, CEO, GUD Holdings

Oil & Gas

“We need to be prepared for lower prices and volatility. It’s going to take well into 2017 before we see any real increases in prices.”

Ryan Lance, CEO, ConocoPhillips

Global Economy

“The recovery is not wide-ranging and is mainly driven by credit. Looking across the world, global growth remains reasonable. Ongoing market uncertainty resulted in delays to the expected Federal Reserve's increase.”

Jean-Sebastien Jacques, CEO, Rio Tinto

“We’d characterize the U.S. market as stable. We are seeing some growth in consumer but continued weakness in heavy industry, including oil and gas.”

Blake Moret, CEO, Rockwell Automation

“Low interest rates, full employment, stable fuel prices and increasing wages remain in place, and these positive factors continue to point toward a strong second half of the year and another potential record year for the industry.”

Mustafa Mohatarem, Chief Economist, General Motors

“It looks to us like it’s a reasonably good bet that the  economy will continue to grow - albeit grow somewhat anaemically.”

Arne Sorenson, CEO, Marriott International

“We continue to face a relatively slow-growth, volatile world.”

Jon Moeller, CFO, Procter & Gamble

“Industrial production is lacklustre.”

Michael Kneeland, CEO, United Rentals

Commodities

“We are seeing some recovery in commodity prices recently, mainly due to improved macroeconomic trends, especially in China. However, we expect continued volatility in the future.”

Jean-Sebastien Jacques, CEO, Rio Tinto

“It is clear the construction industry has picked up with the drawdown of housing inventory. This has positively impacted commodity prices such as iron ore and met coal.”

Jean-Sebastien Jacques, CEO, Rio Tinto

Markets

“Sovereign bond yields at record lows aren't worth the risk and are therefore not top of my shopping list right now; it's too risky. Low yields mean bonds are especially vulnerable because a small increase can bring a large decline in price.”

Bill Gross, Portfolio Manager, Janus

“European equities had a tough first half, as many of last year's trends reversed with outperformance coming in materials, cyclicals, and energy.”

Andrew Formica, CEO, Henderson Group

“Interest rates will be lower for longer which will hold back overall returns to other asset classes.”

Andrew Formica, CEO, Henderson Group

“The referendum itself caused people to just pause in their investments and actually, build up a reasonable amount of cash.”

Andrew Formica, CEO, Henderson Group

Media

“The metro television market declined 2% for the financial year, while newspaper and magazine advertising revenue remained under pressure."

Timothy Worner, CEO, Seven West Media

“We are now seeing the advertising industry conceding that they have overdone the swing away from traditional media especially television.”

Timothy Worner, CEO, Seven West Media

“Softer economic conditions, as well as structural challenges, have continued to impact revenues this year, particularly in classifieds, which has remained under pressure.”

Timothy Worner, CEO, Seven West Media

Other

“It's likely that the companies that win in deep artificial intelligence are those with massive intellectual capital, data, and computing advantages – which are the big tech platforms.”

Hamish Douglass, CEO, Magellan Financial Group

“We are starting to see some softening in pricing …and slightly improved IRRs from where we might have been a year ago.”

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Thank you for reading.

Article contributed by NAOS Asset Management:  (VIEW LINK)



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