Brokerage firm Invast Australia in its October 2015 Investment Committee Monthly Outlook predicts ongoing volatility for financial markets and the possibility of lower official interest rates in Australia this year, with further disruption to the local retail sector coming from Chinese operators.
While Invast says the dollar looks fairly resilient around the US$0.70 range, Australia could see a surprise November or December rate cut, with the gap until February possibly too long for the RBA if it doesn’t pick up any improving sentiment for the Australian economy, according to the report.
The report also notes two key themes emerging from Invast’s recent trip to China, which are impacting on the local property market and potentially the retail sector.
“We spoke to many investors who confirmed that the slowdown is probably worse than what is being reported in the official numbers. The rich and wealthy Chinese investors who had the means and capacity to shift investments overseas have been a major driving in the Australian property market.
“The expectation is that the middle class – who has also benefited from the recent Chinese economic growth story – will start looking offshore to invest and potentially migrate…There is the potential to have further impacts on certain parts of the Australian property market.
“We don’t buy the media narrative that the slowdown in China is negative for the Australian property market and rather see the middle class shift as becoming a major boost for Australia,” the report says.
In terms of the retail sector, “we identified companies like Alibaba, Baidu and JD.com as key exposures that every single trader should be aware of. These companies have numbers that will make your jay drop. We outlined the scope of these investments (all listed in the US) during our monthly webinar.
“These aren’t just disruptive for China, but also potential global competitors. For example, JD.com is considering an expansion into Australia which will see the Chinese online retailer potentially pinning Amazon.com to become the first truly global online retailer with an Australian operation.
“It could potentially not only disrupt traditional retail, but many of the online retailers themselves who have been importing from Chinese manufacturers and selling to Australian consumers. JD.com removes that middle market opportunity. It links the Chinese manufacturers directly with Australian consumers with a same day delivery fulfillment.”
