The Westpac-Melbourne Institute consumer sentiment index for August showed a strong rebound, rising 7.8%. The reading came in at 99.5, which is just 0.5 points short of the 100 mark, which means that the number of optimists and pessimists is equal.
Westpac chief economist Bill Evans called the result “surprising” and said that “There is no comparable event they may have triggered this response although the solution may lie with international issues and housing.”
In July the same index reached only 92.2 points, which means there was a larger number of pessimists amongst the participants. The rise in optimists comes despite falling commodity prices, subdued economic growth and a poor performing stock market
Mr. Evans is certain that high housing prices are the reason for the lift in sentiment. He explained: “Ongoing positive news around house prices may also have buoyed confidence. Certainly there was a much larger lift in the confidence levels of those respondents who wholly own a property (up 6.2%) or who hold a mortgage (up 11.0%) than those who are out of the housing market (up 4.3%).
He further believes that the “rally” in consumer confidence is most likely unsustainable as he sees an increase in unemployment as well as serious threats coming from China.
Nab’s monthly survey on business confidence showed a slump in confidence in most industries. Nab stated that “While confidence eased in most industries, much of the change stemmed from mining and construction firms (which includes a large share on non-residential and engineering firms), suggesting an escalation in Chinese growth concerns could be putting firms on alert.
Surprisingly Nab lifted its GDP forecast with growth of 2.8% in 2015/16 and 3.2% in 2016/17.
In conclusion the outlook remains mixed as we expect sharp declines in mining investments, however we believe other parts of the economy will gain momentum over the next 24 months. The sharp decline of the local currency is absorbing some of the losses in key commodity prices, which remain vital for our exports. Housing prices are at very high levels and even though growth will likely slow down, we don’t expect a sharp fall in prices in the near future. Amidst all this uncertainty it is no surprise that we see such a spread between consumer and business confidence. The local stock market will remain attractive for investors, despite the port performance of the past 12 months. The right companies offer an attractive income yield, coupled with healthy capital growth. Whilst Wise-owl sees further downside risk in the short-term, our medium to long-term view remains positive.
Author: Imran Valibhoy
Aug 12, 2015
Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.