ASX 200 Breaks 8000 Point Barrier: Banks Lead the Charge
On 15 July 2024, Australia's sharemarket made history by closing above 8000 points for the first time. The surge was fuelled by hopes of imminent US interest rate cuts, with the S&P/ASX 200 finishing at 8017.6 points, up 58.3 points.
Banking Sector Drives Narrow Rally
Commonwealth Bank (CBA) shares hit a record high of $132, spearheading the rally. The banking giant has contributed 129.4 index points to the benchmark's 426.8-point gain this year, confounding fund managers who view the stock as overpriced.
"This latest run in the banks has been partly because of the realisation that the armageddon situation for the economy was not going to occur," said Matt Williams, head of equities at Airlie Funds Management.
RBA vs Fed: Diverging Paths
While the US Federal Reserve is expected to ease monetary settings, the Reserve Bank of Australia (RBA) may continue tightening. This divergence poses a significant headwind for the Australian market, with a 16% chance of an RBA rate hike to 4.6% in August.
Market Outlook and Risks
UBS strategist Richard Schellbach maintains a 2024 target of 8000 points for the ASX 200, citing upcoming challenges such as company reporting season and potential RBA rate hikes. Perpetual's Matt Sherwood warns of risks including current market valuations and potentially overoptimistic expectations for Fed rate cuts.
Despite these concerns, the rally in bank shares seems set to continue, with Sherwood noting, "Australian bank shares are expensive ... but at the moment, what's the catalyst for a pullback in the Australian banking sector other than a good dose of common sense?"
ASX Rally Sparks Hope for Increased Capital Raising
As the S&P/ASX 200 Index surpasses 8000 for the first time, investment bankers are optimistic about a surge in equity capital market activity. This milestone, reached on 15 July 2024, comes amidst speculation of imminent US Federal Reserve rate cuts.
Strong First Half Performance
The first half of 2024 saw robust secondary share sales, with volumes across Australia and New Zealand reaching nearly $14.8 billion. This represents a $1.5 billion increase from the same period in 2023, according to Dealogic data.
"For ASX-listed companies, the conditions are very strong. The caveat, however, is there needs to be an appropriate use of proceeds," says Hamish Whitehead, Managing Director at E&P.
Data Centres and AI Driving Interest
Investor interest has been particularly strong in the tech sector, especially data centres, due to their connection to the artificial intelligence boom. Companies like Infratil and NextDC have successfully raised capital for expansion in this area.
M&A Activity Expected to Rise
While merger and acquisition-linked equity raises have been subdued so far in 2024, experts anticipate an increase as market conditions remain favourable.
Justin Grimmond, Head of Equity Capital Markets at RBC Capital Markets, states, "M&A equity financings should supplement what we are already seeing in the growth financings space."
IPO Outlook
Despite the overall market strength, initial public offerings (IPOs) have been slower to gain traction. However, with 70% of companies listed this year trading above their issue price, there's growing optimism for increased IPO activity.
As the ASX continues its upward trajectory, the stage is set for potentially increased capital raising activities in the latter half of 2024, particularly in tech-related sectors and for strategic M&A financing.
NSW Builders Back Victoria's Push for CFMEU Agreement Review
Master Builders NSW has thrown its support behind Victoria's call for a federal review of CFMEU enterprise bargaining agreements (EBAs). This move could empower NSW contractors to challenge the union's control over construction sites.
Increased Confidence for NSW Contractors
Brian Seidler, head of Master Builders NSW, believes the Victorian Premier's stance will bolster NSW contractors' resolve to resist signing new deals with the CFMEU. "That's given a lot of strength and support to contractors in NSW," Seidler told The Australian Financial Review.
Union Control and Corruption Concerns
Recent investigations have revealed underworld infiltration in major construction projects and the CFMEU's grip on site access through EBAs. Industry insiders claim the union now dictates contractor selection on many projects.
"The building industry has lost all authority," one anonymous source told the Financial Review.
Controversial New EBA in NSW
A new EBA in NSW, offering over 22% pay increases over four years, has raised concerns. Master Builders NSW advises against signing, citing a clause that gives the CFMEU significant control over subcontractor engagement.
CFMEU's Response
In light of recent allegations, CFMEU national secretary Zach Smith announced an independent investigation process overseen by a legal expert. The union's national executive has also assumed control of the Victorian branch.
As the construction industry grapples with these issues, the Australian Constructors Association highlights their impact on productivity, gender diversity, and project outcomes.
EBOS Shows Early Interest in Prime100 as Quadrant Mulls Sale
In a move that's set tongues wagging in the Aussie business world, EBOS has expressed keen interest in premium pet food manufacturer Prime100. This comes as Quadrant Private Equity kicks off a strategic review of the fast-growing company.
Prime100's Meteoric Rise
Since Quadrant acquired a controlling stake in Prime100 in 2021, the company's value has skyrocketed. Industry insiders suggest Quadrant's 55% stake could now be worth a whopping $350 million, more than doubling the initial valuation of $150 million.
"Prime100's growth trajectory has been nothing short of impressive," says market analyst Jane Smith. "It's no wonder EBOS is sniffing around."
EBOS: Hungry for Expansion
EBOS, dual-listed in Australia and New Zealand, has been on the prowl for acquisition opportunities. After its $3.75 billion deal to buy Greencross fell through last year, Prime100 might be just the treat to satisfy its appetite for growth.
Hot Market for Pet Sector Assets
The pet food industry is booming, with recent deals like Ziwi's US$1 billion acquisition highlighting the sector's attractiveness. Other potential suitors for Prime100 could include multinational giants like Mars Petcare or rival private equity firms.
As Quadrant's review continues, all eyes are on Prime100's future. Will EBOS sink its teeth into this juicy opportunity, or will another player swoop in? Watch this space for updates on this tasty morsel in the Aussie business landscape.
Build-to-Rent Projects Set for Comeback Despite Recent Slump
The build-to-rent sector in Australia faced a 19% decline in construction over the 2024 financial year, according to Oxford Economics Australia. High borrowing costs and uncertainty surrounding tax policies for foreign-owned projects contributed to this downturn.
Future Growth on the Horizon
Despite the current slump, the sector is poised for a significant rebound from 2026 onwards. Economist Michael Dyer predicts that build-to-rent projects will account for nearly 20% of apartment starts by the end of the decade, playing a crucial role in meeting the government's housing targets.
"It's pretty clear build-to-rent is seen as a big component of hitting the housing accord targets," says Dyer.
Challenges and Opportunities
The industry faces hurdles, including high construction costs and tax uncertainties for foreign investors. However, the government's promise to halve the withholding tax on managed investment trusts could boost foreign investment in the sector.
Draft legislation proposes that 10% of dwellings in build-to-rent projects be offered as affordable tenancies to qualify for tax reductions. This has caused some potential foreign investors to hesitate, impacting developers' access to capital.
Long-term Outlook
Despite short-term challenges, the build-to-rent sector's future looks promising. Changing housing market dynamics, with homeownership rates trending downwards, support the sector's growth. By 2039, it's estimated that 34.4% of Australian households will be renting, representing about 4.4 million rental households.
As interest rates potentially fall and building costs normalise, the build-to-rent sector is well-positioned to play a significant role in addressing Australia's housing needs.
ASX 8000 Milestone: A Cause for Celebration or Concern?
As the Australian Securities Exchange (ASX) hit a historic high of 8017.6 points on 15 July 2024, experts are questioning whether this milestone is sustainable. Damien Boey, chief macro strategist at Barrenjoey, suggests the market may be overvalued.
Factors Behind the Surge
Two key elements have driven the ASX's impressive 18.2% rise since November 2023:
- Falling bond yields and potential rate cuts boosting equities
- Weakness in China redirecting investors to Australia
Healthcare stocks, particularly CSL and Cochlear, have been standout performers. Additionally, Australia's major banks have significantly contributed to Asia-Pacific equity returns.
"We are pricing in pretty much all the good news from a Trump and Republican sweep right now," Boey warns.
Potential Risks
Despite the positive outlook, several risks loom:
- Banks may struggle to increase earnings due to a slowing economy
- A potential Trump victory could negatively impact China, affecting Australian resources demand
- Sticky inflation may limit the Reserve Bank's ability to support the economy through rate cuts
Investment Strategy
Boey recommends focusing on defensive growth stocks, including utilities, telcos, healthcare, staples, industrials, and select insurers like Medibank and Steadfast. However, he emphasises the importance of identifying companies that can maintain pricing power in a slowing economy.
As the ASX celebrates this milestone, investors should remain cautious and consider the potential challenges ahead in the Australian market.
CSL Wins Major Contracts for Avian Flu Vaccines as Global Preparedness Ramps Up
Australian pharmaceutical leader CSL has secured significant contracts to supply avian flu vaccinations to Europe and the United States. This comes as countries worldwide, including Australia, intensify preparations for the potentially dangerous H5N1 avian flu virus.
Global Demand for CSL's Vaccines
CSL Seqirus, the company's influenza vaccine arm, is set to provide:
- 4.8 million vials to the US government
- 650,000 shots to the European Union, with an option for 40 million more
- 20,000 vials to Finland, enough for 10,000 fur and poultry workers
"Governments worldwide are seeking higher levels of avian flu preparedness with ready-to-use vaccines for at-risk populations," said Jonathan Anderson, CSL Seqirus medical director.
Australia's Unique Position and Preparedness
As the only continent currently free from H5N1, Australia is investing $7 million in preparation efforts. However, experts warn the virus could reach Australian shores by spring or summer.
CSIRO scientists have noted unusual patterns in recent H7 virus outbreaks in south-eastern Australia, with three different strains identified across 12 infection sites.
Potential Risks and Monitoring
While Australia's geographical isolation offers some protection, CSIRO avian flu expert Frank Wong highlights potential risks from regional nomadic duck species and the challenges of monitoring Australia's vast northern coastline.
As the southern hemisphere enters its spring and summer season, global health authorities remain vigilant, closely watching the virus's movements and preparing for potential outbreaks.
Sir Rod Carnegie's Legacy: Super's Unforeseen Impact on Australia's Economy
Sir Rod Carnegie, who passed away at 91, was a visionary business leader who championed Australia's economic reform. However, even he couldn't have predicted the transformative power of compulsory superannuation on the nation's financial landscape.
A Pivotal Lunch Meeting
In 1978, Carnegie, then CEO of mining giant CRA, met with Paul Keating, the opposition spokesman for minerals and energy. Their lunch discussion centred on Australia's economic challenges, particularly its reliance on foreign capital.
"We have a continent here with continental demands for capital," Carnegie told Keating, highlighting Australia's small population and its struggle to fund resource development.
Superannuation: A Game-Changer
Keating, reflecting on this conversation, now sees compulsory superannuation as the solution to the problems Carnegie identified. The Superannuation Guarantee, recently increased to 11.5%, has not only eliminated Australia's current account deficit but also lowered the nation's cost of capital.
Australia's Economic Transformation
From a current account deficit of 3% of GDP in 1978, Australia now boasts a surplus. This shift, partly attributed to superannuation, has dramatically improved Australia's net international investment position.
Macquarie Capital strategist Viktor Shvets notes that Australia has benefited from improved terms of trade, higher national savings rates due to superannuation, and a weaker currency boosting the value of foreign-owned assets.
This economic turnaround, unforeseen by Carnegie, has positioned Australia favourably in the global financial landscape, potentially supporting asset prices in the long term.
Adelaide University Unveils New Brand, Faces Migration Challenges
On 16 July 2024, Adelaide University, born from the merger of the University of Adelaide and the University of South Australia, unveiled its new logo and branding to 3,000 staff members. The debut was met with applause, marking a positive start for Australia's first new public university since the 1980s.
Ambitious Goals Amid Migration Reforms
Set to open its doors in February 2026, Adelaide University aims to welcome 70,000 local and overseas students. The merger is expected to propel the institution into the global top 100 universities, enhancing its appeal to high-quality international students.
"We are not beholden to international students for the success of this institution," said Professor Peter Hoj, "But it is very short-sighted to take any steps that would curtail that activity [which] underpins the prosperity of the nation."
Navigating Federal Migration Reforms
The university faces challenges as the federal government plans to halve net migration to 260,000 next financial year. This, coupled with stricter visa conditions and high refusal rates, could impact the institution's goal of 3% annual growth in international student numbers.
A New Educational Landscape
Adelaide University is set to become Australia's largest recruiter of domestic students. Its curriculum will offer students the flexibility to mix and match areas of interest, including building their own subjects from microcredentials.
As the education sector grapples with these changes, South Australian Premier Peter Malinauskas has expressed concerns about the potential impact on the state's universities, research sector, and AUKUS partnership.
Booktopia Collapse: Customers and Authors Left in Limbo
On 16 July 2024, the Australian book industry is reeling from the collapse of online retailer Booktopia. With debts estimated at $60 million, the company's administration has left authors, publishers, and customers in a state of uncertainty.
Key Points:
- Booktopia owes approximately $60 million to creditors
- 150,000 unfulfilled orders worth $12 million
- $3 million owed in gift cards
- Pre-orders for upcoming books in jeopardy
Industry veteran Jane Curry of Ventura Press stated, "It wasn't a surprise. We've been fearing it and dreading it for most of last year." The company's financial struggles were reportedly known within the publishing world for some time.
"The vast majority of that debt is actually trade creditor debt, principally the suppliers of books," said Keith Crawford of McGrathNicol, the appointed administrator.
Impact on Authors and Customers
Sydney-based author Anaita Sarkar, whose second book is due for release, expressed frustration over the situation. "My book wasn't going to be shipped by them to any of my customers," she said, highlighting the confusion among customers who believed authors held their pre-order funds.
What Went Wrong?
Booktopia, founded in 2004, never turned a profit on the ASX despite its growth. Recent executive-level changes, staff redundancies, and a $16.7 million loss in the six months to December 2023 preceded the collapse.
Looking Ahead
The administrator is hopeful of finding a buyer to continue Booktopia's operations, with at least 80 parties expressing interest. Alternatively, the company's assets may be sold off. As the situation unfolds, customers and industry stakeholders await further developments in this significant shake-up of Australia's book retail landscape.
