That's all for today - thanks for following this blog.
Here's our evening wrap of today's session.
And here are the best and worst for the day.
It was a bad day for the banks as investors nervously await word on whether the European Central Bank has any new tricks up its sleeve to help resuscitate the regions economy. The ECB holds a press conference at 10:30pm AEST.
The ASX 200 was dragged down 25 points, or 0.4 per cent, to close at 5631.3, while the All Ords slumped 23 points to 5632.1.
Westpac fell 0.8 per cent, NAB 0.7 per cent, ANZ 0.5 per cent and CBA a more modest 0.2 per cent.
BHP dropped 0.5 per cent as the iron ore price reached its lowest since late 2009, although Fortescue managed to gain 1.3 per cent as it revealed record monthly iron ore export volumes in August.
Telstra started the day well but slumped to as 0.9 per cent fall.
The supermarket owners - Woolies and Wesfarmers - provided some support on a day when most stocks fell. The stocks were up 1 per cent and 0.3 per cent, respectively.
Forget about the $25 billion net debt rule for BHP Billiton’s capital management plans; focus has now shifted to the miner’s credit rating as the trigger for any large scale buyback or special dividends.
That’s the message from the miner’s post-results analyst roundtable, as told by Citi’s mining team.
“Firstly, the target of net debt falling below US$25b before capital management is initiated, has been effectively dropped, with the focus now on maintaining the strong Single A credit rating, which is a bit of a moving feast as credit agencies assess the impact of the NewCo demerger,” the analysts reported back to clients.
“Secondly, BHP will not pre-emptively distribute cash flow on capital [management] before it is generated. In our view, this makes cap [management] unlikely until mid-15, with the potential for ~US$5b to be distributed in FY16.”
Citi said BHP would keep its dual-listed structure and progressive dividend policy, and ruled out any major M&A activity in the near term.
The analysts also said BHP confirmed its spin-off would carry about $US2 billion in liabilities, which would largely be leases and environmental liabilities rather than bank loans.
China’s state-run media are trying to do something the securities industry has failed to accomplish for much of the past three years: get the world’s biggest population to buy more stocks.
The official Xinhua News Agency published at least eight articles this week advocating equity investing after similar stories appeared in the People’s Daily newspaper and on state-run television last month, part of what Everbright Securities says is an increased government push to bolster the market. Authorities have also cut trading fees, made it cheaper to open new accounts and organized investor presentations by the biggest listed banks in the past two weeks.
Huang Shi got the message.
The media campaign “did influence my purchase,” Huang, a 26-year-old who works in the finance industry in the northeastern city of Harbin, said after shifting more than 20,000 yuan ($US3,257) into shares last week. “Also, our stock market had slumped for so long.”
Chinese policy makers are trying to rekindle interest in stocks after the Shanghai Composite Index lost $US460 billion of market value in the three years through May, the most worldwide, and investors liquidated almost 5 million trading accounts. A shift toward equities may help the government reduce speculative investing in the property market and curb risks tied to lightly regulated wealth-management products, whose assets rose to a record $US2.1 trillion in the first half.
“The government is indeed encouraging stock investment,” Zeng Xianzhao, an analyst at Everbright Securities, said by phone from Chongqing yesterday. “They need the market to be vibrant to encourage foreign funds into the country.”
Xinhua’s commentaries and news stories on equities included headlines such as “China needs a bull market with quality” and “How could the stock market be invigorated?”Back to top
Airlines are finding hidden value in air miles.
Frequent flyer programmes can provide a stable income stream for carriers in what is otherwise a cyclical and turbulent industry. Carriers can also sell stakes to outside investors in times of financial strain to raise cash. But the opportunity isn't equal for all.
Though earn-and-burn schemes started as a way for airlines to reward loyal customers, some have morphed into fully-fledged marketing businesses. Airlines are selling miles in bulk to hotels, credit card companies, and retailers, which use the credits to lure customers and mine valuable data on their spending habits. Members then use the miles to buy anything from business class upgrades to vouchers for iTunes.
Successful programmes make airlines more profitable by filling seats. Yet loyalty schemes can also generate good returns in their own right. Their main source of income comes from selling miles to commercial partners at a premium to their redemption value. Buyers pay for them upfront, while the airline only has to bear the cost when the miles are redeemed - if ever. That's good for working capital.
Most airlines still reveal little about the finances of their loyalty schemes. The extent to which carriers can expand into more lucrative areas appears to depend on the size of their domestic market. That makes loyalty schemes one of the few areas in which long-haul carriers in Europe and Asia may have an advantage over their deep-pocketed rivals from the tiny Gulf countries.
As investors wake up to the value of frequent-flyer programmes, airlines are responding. Germany's Lufthansa is giving its scheme a more independent profile. Virgin Australia last week sold a minority stake in its loyalty business to a private equity firm at a valuation which implies it is worth more than a third the airline's total enterprise value.
But giving up control is something that most airlines only consider when they are in deep distress. The programme operated by Qantas has twice as many members as Virgin Australia and is the airline's only profitable and growing business. No wonder that the Flying Kangaroo has decided to keep full ownership of the money-spinner for itself.
The UK could fall into a eurozone-style crisis if Scotland votes for independence later this month, Goldman Sachs warns.
In some of the most bleak predictions economists have made about independence, the Wall Street bank said a "Yes" vote on September 18, while looking unlikely, "could have severe consequences" for both the Scottish economy and the UK overall.
Goldman warned that public services would have to be cut if Scotland goes it alone, and that the country would face much higher borrowing costs. But the most worrying consequence, the bank predicted, would be that uncertainty over a currency union would cause a run on sterling and a capital flight with echoes of the eurozone crisis.
"One of the main lessons from the euro area crisis is that a reasonably high degree of fiscal and/or financial integration is necessary, as a means of effective risk sharing, for a monetary union to work," wrote Kevin Daly, senior economist at Goldman.
He predicted that, even if a currency union were agreed, the uncertainty in the months up to a resolution could mean a run on assets based in Scotland.
Goldman was backed up by an analysis of Scottish independence by economists at Berenberg Bank, who warned that the uncertainty would hamper corporate investment significantly.
"The biggest initial issue would be a spike in uncertainty. Firms could delay investment and consumers could shun big-ticket spending until the post-independence arrangements became clear. That could cause a serious setback for the Scottish economy and a material hit to the 'rump UK'," Berenberg's Rob Wood wrote.
Sterling fell by almost a cent against the US dollar to $US1.6470 on Tuesday after a YouGov poll showed support for a Scottish exit jumped by eight points in the last month to 47 per cent, compared with 53 per cent who said they planned to vote no. It’s currently trading flat at $US16461.
The data is two years old, but a new release by the ATO reveals that over the June 2012 financial year there were 1.9 million individual property investors, of whom around 1.3 million were negatively geared.
That implies around one in 10 Australians who lodged a tax return for that year reported to the tax office a rental loss from investment property.
But despite an explicit warning by Reserve Bank chief Glenn Stevens to baby boomers about the risks of investment property, it is actually taxpayers aged between 25 and 34 who claim the highest average net rental losses.
The average rental loss of the taxpayers aged between 25 and 34 is about $7200 in 2011-12, compared to the average loss for those aged 50-54 of about $5,800, according to the latest Tax Office statistics (see chart).
The level of average rental losses drops dramatically as taxpayers head towards and beyond retirement with 55- to 59-year-olds claiming an average rental loss of about $4200 and 60- to 64-year olds claiming an average loss of $217.
Those aged 65 and older report net rental gains from their properties, as the need to have losses to offset income disappears, with the average rising to more than $15,300 for those aged 75 and older.
Nickel stocks are stronger today after a senator in the Philippines introduced a bill to ban exports of unprocessed mineral ores.
The ban if passed into law would be similar to the one introduced earlier this year by Indonesia, which sparked a rally in nickel prices, and stocks of miners.
The Philippines last year accounted for 10 per cent of global mined nickel production, according to Citi.
"It is unclear if or when a ban would be imposed, and government approval is necessary before any legislation is implemented. No timeframe for its potential implementation has been given," Metal Bulletin's Fleur Ritzema writes in an analysis.
She adds it's worth noting that the Indonesian ban on unprocessed oar exports was widely dismissed before its implementation.
Nickel futures are flat at $US19,055 a metric tonne today but jumped nearly 3 per cent yesterday on fears of an export ban. Prices have surged nearly 40 per cent this year following the Indonesian export ban.
Stocks of Australian nickel miners are rallying today, with Western Areas up 2.6 per cent at $5.06, Panoramic Resources surging 6.2 per cent to 86 cents and Sirius Resources up 1.8 per cent at $3.99,
Westfield could be a takeover target, Intelligent Investor’s Graham Witcomb writes in the AFR:
Women’s fashion retailer Noni B was valued at more than $150 million seven years ago. Yet on Wednesday the founding Kindl family accepted an offer from investment manager Alceon for just $16 million.
When a family that’s been involved in an industry for decades sells out at that kind of price it’s not just because the company is going through a rough patch. It tells you the game has changed.
Retail has always been extremely competitive, but the internet, high Aussie dollar and increased competition mean bricks and mortar retailers that don’t adapt will fall like flies. Internet retailers offer a wider range, easy access to different brands at every price point that are more affordable when the Aussie dollar is strong and increasingly favourable return policies if the shoe doesn’t fit.
As Australia is one of the world’s richest countries, premium brands have also sprung up in landmark Australian shopping centres, all but crushing previously popular premium shopping districts like Oxford Street in Sydney, which has been sandwiched between Westfield City and Westfield Bondi Junction.
But Australia’s most prominent retail family may also be preparing to abandon ship. The Lowy family orchestrated a controversial restructure in June that spun off Westfield Group’s Australian shopping centres into a new company called Scentre so it could concentrate on the higher growth shopping centres abroad.
Freed from the slower growth Australasian assets and with foreign investors desperate to buy long-dated assets yielding anything above zero, Westfield Corp is being touted as a takeover candidate. Its smaller size would also make it easier to bite off for the usual suspects, including large foreign property groups Simon Property Group and Unibail-Rodamco.Back to top
Almost $70 billion has flowed to investors in dividends throughout 2013-14, keeping equities in favour and underscoring Australia's love affair with companies which give back cash.
Dividends declared in the earnings season just ruled off take the haul in the year to June 30 to a record $67.8 billion, up from $61.3 billion in 2012-13 for members of the S&P/ASX 200, analysis by Credit Suisse shows.
Improved payouts from Telstra, Wesfarmers and Commonwealth Bank led the way, ensuring the S&P/ASX 200 Index held its gains through August in spite of only single-digit average earnings growth by Australian companies. Indeed, dividends rose more than earnings.
The RBA revealed on Wednesday the economy grew at 0.5 per cent in the second quarter, slowing from 1.1 per cent in the first quarter, making the strength of dividends all the more remarkable. Annual gross domestic product growth was a more comfortable 3.1 per cent.
"It is obvious that some of these massive dividend payments are coming at the expense of capex," Credit Suisse equity strategist Hasan Tevfik said.
"This is what investors want now, especially "selfies" [self-managed super funds] who are collecting more than $10 billion of dividends themselves. It is important to remember Australian companies are contributing a significant amount to our pension scheme."
Goldman Sachs equity strategist Matthew Ross highlighted investors' strong preference for dividends. "It's still a market that really likes defensive, high yield income streams," he said.
The slump in iron ore prices has already forced some third-grade producers out of the market, Goldman says in a note, adding the low hanging fruit is already gone:
- The displacement of marginal supply began in Indonesia with the strict enforcement of an export ban saw volumes plunge from 18Mt in 2013 to 0.2Mt in Q2 2014. We had previously flagged Indonesian iron ore as particularly vulnerable because of its low value per tonne and its sensitivity to low prices, even if regulation rather than competition was the main catalyst.
- More recently, an aggregate 12Mtpa of Tier 3 seaborne capacity has been flagged for closure. The attrition at the top end of the seaborne cost curve has already started, and future surpluses will reach ever deeper into the cost curve and maintain the downward pressure on iron ore prices.
Goldman also notes that in the past two years, buyers flexed their muscle by destocking aggressively. Is a similar correction likely now?
- The short term demand outlook is challenging, but we believe iron ore inventories held by mills are not high enough to support another major destocking cycle.
- Instead, we expect the price discount of seaborne ore relative to domestic concentrate (currently US$20/t versus a 2013 average of US$4/t) to continue and port stockyards to remain as the destination for surplus ore.
And here's how the rest of the region is doing today, ahead of a key ECB meeting later today:
- Japan (Nikkei): -0.2%
- Hong Kong: -0.3%
- Shanghai: +0.1%
- Taiwan: -0.5%
- Korea: +0.2%
- ASX200: -0.55%
- Singapore: -0.3%
- New Zealand: flat
‘‘We’re likely to have volatility in September,’’ Stuart Freeman, chief equity strategist at Wells Fargo Advisors said. ‘‘We’ve got a fundamental situation, an acceleration of growth that’s going to allow the market to move higher by the end of the year.’’
In Japan, the central bank has kept monetary policy steady and maintained its upbeat view of the economy, signalling confidence that it can meet its 2 per cent inflation target without additional monetary stimulus.
As widely expected, the BoJ voted unanimously to continue increasing base money, or cash and deposits at the central bank, at an annual pace of 60-70 trillion yen through purchases of government bonds and risky assets.
"Japan's economy continues to recover moderately as a trend," although the effects of the April sales tax hike can be observed, the BoJ said in a statement issued after the meeting, keeping its assessment unchanged from last month.
The BoJ has stood pat since launching an intense burst of stimulus in April last year, when it pledged to double base money via aggressive asset purchases to achieve its 2 per cent inflation target in roughly two years.
The Nikkei is trading slightly lower.
Meanwhile, China’s benchmark money-market rate fell the most in two months on signs the central bank will keep monetary policy loose enough to support an economic recovery.
The People’s Bank of China pumped 7 billion yuan into the financial system in the five days through yesterday, a fourth weekly injection.
China will allow listed property developers to sell bonds on the interbank market, Reuters reported yesterday, citing three unidentified people.
‘‘This new policy initiative suggests that Chinese authorities are keen to shift some financing demand to the capital market, with an intention to lower the overall cost of funds,’’ says Zhou Hao, a Shanghai-based economist at ANZ. ‘‘The market liquidity conditions are improving.’’
The seven-day repo rate, a gauge of funding availability between banks, dropped 16 basis points to 3.23 per cent this morning in Shanghai, according to a weighted average from the National Interbank Funding Centre. That was the biggest decline since July 3.
Relaxing the listed developer issuance rules will help boost property market sentiment and support risker assets, according to a report yesterday by Guotai Junan Securities. This is a further step in helping cash-strapped developers cope with a market downturn, Guotai Junan said in the report.Back to top
China's yuan has hit a nearly six-month high on the back of a long-running rally.
The People's Bank of China set the midpoint rate at 6.1666 per US dollar before the market opened, up 31 pips from the previous fix.
The spot market hit 6.1340 per US dollar, the highest level since early March, during morning trade. It closed at 6.1411 on Wednesday.
‘‘Risk appetite has improved on signs China’s economy is still holding up, while political risks in Ukraine are receding,’’ said Daniel Chan, a Hong Kong-based analyst at Brilliant & Bright Investment Consultancy. ‘‘The yuan is still on trajectory for a gradual, mild appreciation.’’
Australian houses are expensive, sure, but the local property market prices doesn't come near London.
That's the view of Charles Dallara, who is the chairman of the Americas region for Partners Group, which has more than €30 billion invested in private equity, debt and infrastructure funds all over the world including in Australia.
Dallara reckons rising housing prices in Australia require monitoring by regulators but the risks posed to the financial system are nowhere near as great as in the United Kingdom, which is approaching bubble territory.
Australian capital city housing markets had their strongest winter since before the lead up to the global financial crisis, with Sydney and Melbourne house prices lifting 5 per cent and 6.4 per cent respectively over the three months to the end of August, according to RP Data.
“The housing market is something that needs monitoring but it really doesn’t pose a major risk to the Australian economy from my perspective,” Mr Dallara told Fairfax Media from the Australian Private Equity and Venture Capital Association Alpha conference in Melbourne.
“In terms of the fundamental valuations relative to income, relative to payment capacity, in the UK I think the risks are much higher.”
Dr Dallara, who is a former managing director of J.P. Morgan & Co and a senior Treasury official in the George H.W. Bush and Ronald Reagan administrations, said Australian housing had not become a trophy market in the way London had.
“The housing market in Australia is relatively self-contained,” he said.
“In London, Middle Eastern, Russian and now Chinese money has driven up housing prices extraordinary.
“I think London has become a very unique market with unique vulnerabilities and I don’t see those same factors here in Australia at all.”
Foxtel is stepping up its battle for subscribers by slashing the cost of a basic cable package to $25 and launching a new on-demand BoxSets channel for pay TV and digital users.
The announcement came as part of a revamp of Foxtel's cable and satellite subscription pricing in what could be seen as a preemptive move before US giant Netflix, which is rumoured to be eyeing Australia, enters the local market.
"We recognise that many Australians feel that Foxtel is too expensive to fit comfortably into their budget," Foxtel chief executive Richard Freudenstein said.
The newly created $25 entry point entertainment pack includes 40 channels, such as MTV, National Geographic TCM and Universal.
The BoxSets channel will be available for an additional $10 on top of the newly announced $25 entertainment pack.
"Bingeing on television is hugely popular and we know that this service will be a smash hit," Mr Fredenstein said at a subscription TV industry conference on Thursday.
Subscribers will be able to view complete series of television shows on demand, including popular series Game of Thrones, The Newsroom, Entourage and The Sopranos.
Foxtel will launch its BoxSets channel on November 3. It will be available through its mobile service Foxtel Go and through its internet-connected iQ personal video recorder boxes. At this point in time, it is not available on online only package Foxtel Play.
After issuing a "dire warning" about the national postal service's future viability (see post at 10:07), the world's best paid postmaster is now detailing his action plan.
Australians will be forced to pay more for "regular" mail delivery as part of a shake-up of Australia Post's dwindling letters service.
Managing director Ahmed Fahour announced the changes on the back of the business announcing today its mail division lost a record $328.4 million in 2013-14.
He said without the "urgent reform", Australia Post would have to ask the federal government for taxpayer support.
There will be three options - regular, priority and express - that customers will be able to choose from. Priority delivery will occur five days a week, for a fee, while regular delivery will occur one to two days after priority.
Customers can choose their preference by the type and cost of a stamp.
The cost of a stamp - 70 cents - is amongst the cheapest in the world but does not cover the cost of the service, he said.
He said the reforms would deliver choice and flexibility for customers, 97 per cent of whom were businesses and governments.
Australia Post's parcel delivery service continues to grow thanks to the explosion in online shopping, helping to post an overall profit of $116 million. It is a 35 percent drop in profit compared to the previous 12 months.
"More people are shifting from delivered mail to online. We need to respond," Mr Fahour said.
The only way to make a firm break with the pre-GFC era is to make banks hold waaaaay more capital, reckons FT columnist Martin Wolf:
The business model of contemporary banking has been this: employ as much implicitly or explicitly guaranteed debt as possible; employ as little equity as one can; promise a high return on equity; link bonuses to the achievement of this return target in the short term; ensure that as few as possible of those rewards are clawed back in the event of catastrophe; and become rich. This was a wonderful model for banks. For everybody else, it was a disaster.
The new regulatory regime is an astonishingly complex response to the failures of this model. But “keep it simple, stupid” is as good a rule in regulation as it is in life. The sensible solution seems clear: force banks to fund themselves with equity to a far greater extent than they do today.
So how much capital would do? A great deal more than the 3 per cent ratio being discussed in Basel is the answer. As Anat Admati and Martin Hellwig argue in their important book, The Bankers’ New Clothes, significantly higher capital – with true leverage certainly no greater than 10 to one and, ideally, lower still – would bring important advantages: it would limit the implicit subsidy to banks, particularly “too big to fail” ones; it would reduce the need for such intrusive and complex regulation; and it would lower the likelihood of panics.Back to top