Wilson Asset Management weekly: Insights from the CLSA conference in HK, Seven Group Holdings and CBA
The S&P/ASX All Ordinaries Accumulation Index closed down 0.2% for the week. Minutes from the Reserve Bank of Australia’s (RBA) meeting released on Tuesday suggested that reduced demand for steel production in China would indicate downside risks to the current iron ore price. We note that the Australian market is currently pricing in two interest rate hikes in the next 12 months.
On Wednesday, the US Federal Reserve announced it will start to unwind its balance sheet and indicated another rate increase before the end of the year was possible. Global markets reacted negatively to the announcement and Australian shares fell to their lowest close in seven months on Thursday.
In this week’s report we discuss insights from the CLSA conference in Hong Kong, Seven Group Holdings and CBA.
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Insights from the CLSA conference in Hong Kong
Olympic great Michael Phelps, former White House Strategist Steve Bannon and Harvard Medical School Professor David Sinclair were among the presenters at the annual CLSA Investor Forum I attended in Hong Kong last week. One of the largest and most significant investment conferences in Asia, the five-day event was attended by 1,700 professional investors from across the region and provided investment insights from world-leading academics, analysts and global businesses on a broad-range of topics such as the rise of the worldwide populist movement and the future of crypto-currencies. With more than 300 presentations, as well as access to Australian and overseas companies, I divided my time equally between attending keynote addresses on global thematics, such as global population and demographic trends, meeting with CLSA’s Asia analysts to discuss their perspectives on sectors including property and infrastructure, and having one-on-one meetings with companies such as Qantas (ASX: QAN), Macquarie Group (ASX: MQG) and The a2 Milk Company (ASX: A2M).
The conference was an invaluable opportunity to gather insights from global thought leaders, investment experts and senior company executives to inform our investing approach and stock selections. The overarching takeaway from the conference was that China’s economy is performing very well and will continue to do so. Next week, I will expand on my insights and the outlook for the Chinese economy and the impact on Australian shares.
Seven Group Holdings hire raising
On Wednesday, Seven Group Holdings (ASX: SVW) announced it had entered into a $517 million agreement to acquire the remaining 53.3% interest of Coates Hire. That night the company also announced a $375 million equity raising (which we participated in) to reduce debt and provide the balance sheet capacity for future acquisitions. We believe Seven's move to full ownership of Coates Hire comes at an opportune time given a strong outlook for east coast infrastructure activity. Shares in Seven Group Holdings closed up 6.3% for the week. We own Seven Group Holdings as a market-driven investment in WAM Capital, WAM Leaders, WAM Active and Century Australia.
CBA considers the future
The Commonwealth Bank (ASX: CBA) announced the sale of its life insurance businesses in Australia and New Zealand to the China-owned AIA Group Limited for $3.8 billion on Thursday. Separately, the company also launched a strategic review of its wealth management business Colonial First State Global Asset Management. CBA said the strategic review will consider a range of options including a separate initial public offering of its wealth management division. We are supportive of the sale and expect the strategic review will free up capital that will likely exceed recently increased capital requirements implemented by the Australian Prudential Regulation Authority. Shares in CBA closed up 0.5% for the week. We own CBA as a market-driven investment in WAM Leaders and Century Australia.
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Chris was the Chief Investment Officer of Wilson Asset Management, having joined the company in 2006. He was also the Portfolio Manager responsible for WAM Capital (ASX:WAM), WAM Research (ASX:WAX), WAM Active (ASX:WAA) and WAM MicroCap (ASX:WMI).