Monday, March 16, 2015

Things Getting Hot Down Under?

Australia hasn't had a recession in 23 years. I'm not sure if they are the record holders for the longest streak in modern history, but it sure seems like it. The last time they had a recession was in the 1990s. If there's one thing we know about business cycles.... it's that there are cycles.

I don't know about you, but I've been hearing a lot of pretty nasty news coming out of Australia lately. Basically, the narrative goes like this:
China is slowing down, and that is a problem for Australia because much of the basic materials that China consumes comes from Australia. Australia is already suffering because of the long drawn commodities bear market pressuring prices, a slump in total demand will make things even worse. The Australian Dollar is sinking like a ship, while their housing market is on fire.

If you thought Singaporeans loved property, you should check out what is going on in Australia. Zero down, interest only mortgages. Hardcore? You bet. I see Australian properties being marketed every now and then as well, but they don't look good under the surface to me. It looks to me like Australian developers are selling off high-end units earmarked just for international investors to "invest" in. The lovely couple from SG Prop Talk did a nice write-up about Australian property buying, but I think the most interesting facts are that foreign "investors" can only purchase brand new developments, and only offload their properties to locals. Sounds fishy? Smells fishy? Probably is fishy.

Needless to say, things like these usually don't end up too well. Drop it while it's hot.

Fraser Centrepoint Limited has a nice cool 45% of operating profit coming from their Australand division. Doesn't really help them considering they paid a 22% premium over NAV to acquire Australand. Which is probably why FCL is trading at a 22% discount to NAV right now, looking at the discounts on other land developers, that might not seem like such a bargain anymore.

Stamford Land has it's entire property portfolio almost exclusively in Australia, save for 1 hotel in Auckland, 1 floor of an office building in Singapore and a luxury housing development in Auckland. Now, they are selling at a premium of 3% over NAV, but I hear it is because they do not adjust the value their properties on their balance sheet until it goes on sale. Whatever the case, they would be affected by a slump in Australia, especially if it concerns real estate.

Singtel actually has a decently sized exposure to the Australian market through Optus. How big? 41% of revenues or 31% of EBITDA, whichever you like to look at more. If something bad happens to Australia, I would imagine that there would be blowback, but given the defensive nature of the business, probably nothing too extreme. Noticeable, but not extreme, I would imagine.

So those are the three stocks on the SGX which I quite like which has quite a decent exposure to Australia. If Australia does suffer a beating, then Miranda Kerr won't be the only thing on my mind when someone mentions "Australia" anymore.

Do you think Singtel, Stamford Land or Frasers could distract me from Miranda Kerr? Maybe, but they have to be looking pretty damn fine, because she does. Oh yeah baby.


  1. Would like your opinion on accordia Gof Trust.Thanks


    1. Hi Victor,

      I own some, but it's a small portion of my portfolio. I'm invested in it as an asset play and also on the back of a strengthening yen. It is definitely not a core holding.


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