When Even Apple and Amazon Can’t Win


The powers that be must be worried about the Australian housing market. Moves are afoot to heat it back up again.

The Australian Prudential Regulation Authority (APRA) announced this morning that it’s removing its ‘supervisory benchmark’ from interest-only residential mortgages.

This was always a temporary measure. But we also have the news that the Reserve Bank is leaning on the big bank chiefs to not be so tight with credit anymore.

Oh my, how things have changed. Today’s Profit Watch explores the implications…and the stocks to avoid for now!

Let’s reflect on the general absurdity of the situation. The Reserve Bank has left interest rates on hold since August 2016.

According to the standard interest rate theory, this should be ‘stimulating’ the economy.

Except there’s precious little evidence that the Aussie economy is doing a great deal right now.

The fact is that it’s the quantity of credit that ultimately drives growth and asset movements (not what central bank boffins do with interest rates).

And the banks have been under pressure to rein in their property lending. So they did. And housing cooled as a result.

We can see this playing out on the stock market right now…

FIRE sector weakens from credit crunch

Villa World [ASX: VLW] is an Aussie homebuilder. Last week, it released a negative announcement on current conditions – and promptly fell 16%.

Here’s a snippet from its release…

Residential housing market conditions and customer sentiment have significantly deteriorated.

Sales results and enquiries have been impacted by a material reduction in the availability of finance for residential housing, with customers experiencing delayed finance approvals and more stringent assessment criteria.’

As you can see, knowledge of the property cycle can help in the stock market.

That’s not to say the doomsters calling for a total real estate collapse will be correct.

Consider that high coal and iron ore prices are underpinning the federal budget. I made the case for this outcome earlier in the year.

That gives the government a windfall to try and buy off the population with tax cuts at the next election.

We also have the State governments investing in infrastructure. Land values will absorb these benefits.

Still, there’s no doubt it’s not much of a time to be loading up on homebuilders, mortgage brokers like Mortgage Choice [ASX: MOC] and other associated players like McGrath Real Estate [ASX: MEA].

However, it’s not a bad idea to keep a watchlist of stocks like these…and throw in some retailers as well.

Keep an eye on the announcements to get a sense of whether the trend is getting worse or better.

When the cycle turns back up again – and at some point, it will – one sign we should see is some buying interest come back into these stocks.

For now, though, it means hunting away from this sector to find profitable ideas in the shorter-term…

Who dominates here wins

That’s not so easy because so much of the Australian economy is structured around housing and consumer spending.

The sell-off in the USA is also throwing up some very interesting opportunities.

If you feel like you’ve missed some of the action over there, now’s your chance to step in for the some of the names you like.

Yesterday, I made the case for exploring stocks that can capture the uplift from the emerging middle class all over the world. This is the only place the next big lift in growth can come from.

That’s what the big US tech companies are doing – especially targeting India.

That alone could add an astonishing 39 million smartphone users this year.

One reason Apple [NASDAQ: AAPL] has sold off recently is that the market is worried about its waning appeal in places like China and India.

Perhaps appeal is the wrong word. It may simply be price. The iPhone is too expensive relative to the income levels.

Either way, firms that produce much cheaper handsets like Nokia, Samsung and Oppo are winning dominant market share.

This shows you two things.

  1. One is that the outlook for emerging markets feeds into Western stock values.
  2. A second is that even a superb company like Apple can be defeated with a superior strategy.

My researcher and I have been hunting for the firms that can take down giants like this – including Amazon.

You don’t hear about it much. We’re all too focused on the central banks and the daily news.

But whoever wins India, Southeast Asia and Africa own the next decade.

Stay tuned for more on this.


Callum Newman Signature

Callum Newman,
Editor, Profit Watch