Australia Revving Up as Money Men Dole It Out

Australia Revving Up as Money Men Dole It Out

Hear that revving noise?

That’s Australia’s economic engine really starting to make some racket. I’m seeing bullish signs for the economy right now.

Where do I start?

Well, just look at what the finance guys are doing. UK bank HSBC  says it wants to get into the Australian mortgage biz.

This is because regulators have forced the big Aussie banks to leave money on the table here. That cash basically just needs to be scooped up. HSBC is putting its hand out.

And what’s the easiest way to do that?

Undercut everybody on price and get the word out!

An owner occupier can get a 3.65% rate from HSBC until the end of the year. HSBC also did a deal with Aussie Home Loans to join its broking network. Plus it’s opening up a few more branches of its own.

HSBC isn’t the only one chasing this market in a big way…

Aussie property to keep
running on credit fuel

Australian Finance Group Ltd [ASX: AFG] has issued $350 million in mortgaged backed securities. It’s the largest deal this company has done — and it’s been around since 1994. Investors have snapped it up.

This follows on from Mortgage Choice Ltd [ASX: MOC] CEO John Flavell saying that owner occupiers are filling the gap left from the cooling investor market.

MOC reported a 13.5% rise in profit and a record loan book last month. Flavell also thinks the banks have overreacted in raising the rates on interest-only loans, and might bring them down shortly.

The most interesting thing to watch from here is the first-homebuyer market (FHB). What bothers this group more than anything is the size of the deposit they need, not the repayments.

I recently saw a creative group of 11 get together to negotiate a discount on their house-and-land package with one developer, who sold eight plots in one hit. That’s one way, in part…

But I’m sure there’s going to be more government tinkering to get this deposit problem down. I’m just not sure what it’s going to look like.

A guy from Westpac was in The Australian Financial Review last month, saying a deposit was the biggest issue. He also said 75% of FHBs used products that allowed them to secure the deal with their parents’ property as security.

That will become important in the future. There’ll be a chain reaction when property does fall, because not only will it take down the marginal buyer, it will claw at asset values in seemingly unrelated areas.

But that’s a long way off, in my view. For now, we can see credit filtering out into the economy in a myriad of different ways.

And this is just the standard stuff. Property fund manager 360 Capital Group is on its way to becoming a major non-bank financier. It’s lending to developers on the east coast, because the banks won’t.

That’s the other reason I’m positive…

Construction to bring jobs
and investment

There’s plenty of building going on. Government spending on infastructure is rising at the fastest pace in eight years, according to The Australian this week. A lot of this is the transport investment happening in NSW and Victoria.

But there’s plenty happening up in Queensland too. There might even be more soon. A group called EG Funds is seeking approval to build twin towers in Surfers Paradise.

The towers would be 71 and 55 storeys high, respectively, if they get the go-ahead. I’m fairly sure they would be some of the tallest buildings around there.

With such construction and property moves happening — not to mention mining ticking over nicely — it’s hard to see how Australia’s economy will turn down in a bad way anytime soon.

That means we can get on with finding opportunities in the stock market amongst all the noise. I had a reader write to me and say he was staying out of the market because it’s currently directionless.

I know exactly what it means — the main index has been going sideways for months. But unless you’re actually buying an ETF off the market, I just see too many individual stocks enjoying good runs to stay out completely. Each stock can do its own thing, in general.

The Aussie stock market has been a downright laggard compared to places like the US, Germany and the UK. But our index is dominated by the banks and the big miners.

Amongst the smaller players, there are stocks running up and down in a big way all the time. It’s kind of like an inverted wave, where the calm is on top, and the turmoil and momentum undernearth.

Here’s an example: I had coffee with Greg Canavan this morning. He’s a fellow financial editor. He told me one of his small cap plays was up 40% yesterday.

You’re never going to get a move like that from Telstra.

Small caps are where some of the best action is. Check out how to get on board here.

Callum Newman
Editor, The Daily Reckoning Australia