Management teams seem to have forgotten how to invest in a counter cyclical manner

It is interesting to note that Australia’s largest companies appear to be unduly influenced by the steady stream of negative global headlines. Given that interest rates have fallen, banking regulations have strengthened, unemployment is improving and corporate debt levels are conservative, we would have thought that by now Australia’s leading industrial companies would be investing for the future. Unfortunately, boards and management teams seem to have forgotten how to invest in a counter cyclical manner. The only segment of the market to expand aggressively at present is the REIT’s. By way of example, commercial property transaction values in the second quarter of FY2015 were 40% higher than the pre GFC peak. Despite this, REIT investors continue to support dilutive equity raisings at the bottom of the interest rate cycle at prices that are meaningfully above book value. It would appear that the ghost of Centro has been exorcised. (VIEW LINK)

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