Global markets retraced overnight as the financial turmoil in Turkey further weighed on markets in Asia, Europe and the US. The situation in Turkey has seen heightened risk aversion, and some investors are likely taking money off the table.
Australian & NZ Property Market Concerns
We thought we would talk about something different today given the local headlines have been dominated in recent times by talk of a property market correction. We think it is clear that the Australian/NZ property markets are now in a period of price correction, but the key question is how deep the price drop will be?
In Australia, house prices have already pulled back significantly in the hot markets of Sydney & Melbourne. We looked at the Barfoot & Thompson house price data yesterday and the median Auckland sale price has dropped -10% from its peak in March 2017.
In NZ, both the Treasury and the Reserve Bank both issued warnings to the Government that growth is now starting to slow. Further, we believe that new government policies including restricting immigration and foreign ownership, are also likely to hit property prices, at least at the margins. In Australia, it is now harder for Chinese nationals to get money out of China and Australia has increased stamp duty and bank lending restrictions are stricter to foreign residents.
While both the RBA and RBNZ seem unlikely to raise their cash rates from all-time lows, interest rates are on the rise in the US. A major source of funding for the Australasian banks is offshore funds, so higher US rates will impact on the ability of the banks to lend. In Australia credit growth looks to be slowing and buying demand is moderating. We have also seen a lot of anecdotal evidence that the banks are “tightening up” when it comes to lending on both sides of the Tasman.
Further, we think to is hard to argue that the Australasian property prices are not overvalued, on a relative basis and compared to average income.
While we do not believe there will be a full-blown property collapse, our view is that house prices will moderate over the next few years for the reasons above.
Stock sectors that will likely be impacted by a property market slowdown include the property REITs, retirement villages, retail space, construction companies, and the banks.
Australia & New Zealand Market Movers
The Australian share market started the week off on a lower note (ASX 200 index -0.42%) mirroring losses across Asian stock markets. Both heavyweight sectors, the miners and banks, came under selling pressure. In company news, Nufarm shares plunged -13% after a multi-million dollar judgement was awarded against Monsanto's glyphosate products after a man claimed weed killer Roundup, and the chemical glyphosate, caused his cancer. Nufarm is a major distributor of Roundup in Australia.
The New Zealand market sold off on Monday (NZX 50 index -0.71%) in a global rout as fears over the Turkish economy and its potential threat to the European banking system weighed on risk-sensitive assets and emerging markets in particular. In stock news, Freightways slipped after reporting a 2.1% increase in annual profit and signalling expectations for earnings growth in the coming year. Contact Energy also declined after the electricity generator-retailer reported a -4% decline in annual earnings, and said it was aligning its commercial and industrial sales more closely with generation.
3 Things Markets Will be Watching this Week
1. US corporate earnings season moves into its latter stages.
2. Locally, investors in Australia and NZ will have a number of profit announcements to focus on as earnings season gets into full-swing.
3. Geopolitics, with the Turkey economic situation hitting headlines over the weekend.
Have a Great Day,
Team