Yovich & Co. Weekly Update - 15 October 2012
Oct 15, 2012 | Commentary
This Week's Themes
- The NZX snapped a 6 week winning streak with the first down week since the last week of August.
- Shanghai played catch up after being closed the previous week. Data showed that the rate of growth for the Chinese economy is still slowing but that inflation is also slowing. This will open the door for the Chinese Government to employ more aggressive stimulus policies.
- European and U.S. markets were down after the IMF released the “World Economic Outlook”. The report outlined that there has been a downward revision for global economic growth. In contrast, the report was very favourable for the New Zealand Economy with predictions of 2.2% growth in 2012 and 3.1% in 2013. The main catalyst for the positive numbers is the rebuild of Christchurch.
- The Kiwi was slightly softer after inflation numbers came in at the lower end of the 1% to 3% target range.
Australian Financial Sector Outlook - The major banks rational oligopoly is alive and well, delivering high profits, sustainable growing dividends and providing an attractive alternative to declining returns from bank deposits. The previous five years have been about capital strength and asset quality, but the focus for the next five years will be on technology and improving operational efficiency in a low credit growth environment. Australia & New Zealand Banking Group (ANZ) and National Australia Bank (NAB) carry more risk and benefit from higher exposure to growth opportunities in business banking than the retail heavyweights, Commonwealth Bank (CBA) and Westpac Banking Corporation (WBC). We retain our positive banking sector view with expectations that the major banks will start capital management initiatives in FY13 to return excess capital to shareholders unless there is an external economic shock or the Australian economy goes into a sharp decline.
Our two preferred picks depending on your risk aversion are ANZ and WBC. Both have compelling cost restructure initiatives in place, quality asset backing, high dividend yields and are listed on the NZX.
Australian Financial Sector Outlook ANZ ANZ.nz Westpac