A Big Rally Brews if This Sector Fires

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And over 7,000 points we go on the ASX.

Profit Watch stuck its bull flag in the ground late last year.

We’ve kept hammering the same point since resuming in the new year.

You should be cashing in on this rally.

The signals keep coming that this rally could sustain longer than some people think possible.

Here’s why I say that…

The Australian Bureau of Statistics said this week that owner occupied housing loans expanded 10% in November from a year earlier.

That’s a big lift.

I wrote the following to my paid subscribers back in early December…

The property market is clearly stabilising in Australia…and likely to start trending higher again.

It won’t be long before investors go back to chasing the gains to be had here…

The implication is obvious: Australia’s debts are going to get bigger…and higher house prices are coming.’

It’s not even the raw numbers that I find the most pertinent.

Punters to push ASX higher as property threat recedes

It’s what effect a rising housing market is going to have on the investing public.

My take is that it adds fuel to the ASX fire. People associate a rising housing market with good economic conditions.

And it certainly diffuses the major fear of a real estate collapse.

That has hung over the stock market every year since the Global Financial Crisis.

A rallying property market also adds the prospect of some earnings growth to the banks again.

Or at least helps stabilise them around these levels.

Don’t forget I mentioned the other day that the banks recent bond raisings in the US and UK were at the lowest cost for 10 years.

That helps keep mortgage rates low in Australia.

And, of course, the epic rally in iron ore just keeps on keeping on. It’s still at US$96 a tonne.

Now, could something else come along that’s bullish as well?

Yes, if you believe Whitehaven Coal…

The company sees a brighter outlook for both metallurgical and thermal coal prices in 2020 compared to 2019. It wasn’t a great 12 months for either.

Granted, they’re bound to talk their own book. But this bears watching. Coal is Australia’s second biggest export.

Any lift from these two would just keep juicing Australia’s nominal GDP growth and earnings for coal producers on the ASX.

BlackRock made headlines this week when it informed the market that it would no longer invest in thermal coal stocks.

That looks to be part of an irreversible trend away from coal.

However, for the moment this income still shows up in Australia until we stop producing the stuff completely.

My view is that the government would do well to build an export industry that can replace the income we receive from coal in the future.

That day is coming whether you agree with it or not.

But the market does not concern itself with years into the future.

The next tailwind for the ASX could be this

The next couple of quarters can be hard to forecast at the best of times.

Watch for rallying coal prices as another tailwind for the market.

It’s certainly not beyond reasonable possibility.

China has been stimulating its economy via monetary policy. Steel production looks to be strong with iron ore high.

And India makes no bones about using coal while it develops its economy using the same resource Britain and the US enjoyed.

A lift in global growth could see Australia’s big exports — iron ore, coal and LNG — all firing at the same time.

This, in turn, drops the riskiness of the Australian banking sector, leveraged as it is with international money.

We could have a big rally brewing here — just as I forecast right here last year.

Regards,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch