Weaker Australian dollar creating opportunity in many sectors.
The weaker $A will benefit tourism, education, agricultural and even the mining industry, a leading fund manager says.
Pengana Capital’s Australian equities fund manager Rhett Kessler says ‘a lower $A represents lower global purchasing power for us as consumers. However, we expect several important domestic industries to benefit materially from the currency shift’.
‘These include the tourism, education, agricultural and even, dare we say it, mining industry. Many companies have been forced to streamline their operations to cope with the high $A.’
Although we have been biased towards a weakening $A for some time, the speed of its decline has been surprising.
Kessler is pessimistic about the short- to medium-term outlook for discretionary spending and employment levels, despite the falling $A possibly translating into very high profits for some companies.
‘Having said this, we expect most domestically orientated companies to report muted trading activities (at best) while also being cautious in their outlook statements.
‘The recent unusual political activity continues to impact negatively on consumers and corporates alike while the unseasonably warm winter has severely dented discretionary fashion retail sales.’
Commenting on the US Fed ‘frightening’ investors during May and June with several ‘tapering’ of fiscal stimulus statements, Kessler says the Fed highlighted its flexible approach to ensure a sustained US economic recovery.
This saw a widespread relief rally with most equity markets – S&P500 (+4.9 per cent), FTSE 100 (+6.5 per cent) and the Euro Stoxx 50 (+6.4 per cent), closing significantly higher.
The Australian market followed with resources (+10 per cent), materials (+9 per cent) and energy (+6 per cent) leading the charge.
Conversely the weaker sectors were REITS (-1 per cent), information technology (0 per cent) and consumer staples (+1 per cent).
The Australian dollar continued its slide against the US dollar falling another 2 per cent (to print) to below 90c for the first time since August 2010.
‘It appears that the combination of political uncertainty, a deteriorating fiscal position, weakening mining sector and persistent concerns regarding the outlook for the Chinese Economy continues to weigh on the domestic economy (read lower interest rates) and consumer confidence,’ he says.
The long list of companies issuing profit warnings during the lead-up to the 2013 financial year reporting season has highlighted the impact these issues are having on trading conditions.
Mining services companies have been hit particularly hard due to the triple whammy of:
a) a difficult comparison with a robust prior period
b) the sharp slowdown in mining activity generally
c) the effect of the larger mining houses laser-like focus on cost-cutting
While this may provide some relief for financial and industrial companies due to less competition for scarce resources (labour and capital in particular), the transition is expected to take some time and be the source of some pain, says Kessler.
