Behind the 8 Ball



The other bigger question also may be whether we will see more funds flow into the stock market as the property market cools. Like many countries in the world, property has been a one way bet for many years, and not accounting for the benefits of leverage, gross returns from property have often dwarfed those in the stock market. The attractiveness of property versus stocks for retail investors could all change if we see the property market soften.

I have regularly written in these note s, and our analyst team have also made the point that the property market’s best days are well behind it in our view. Certainly, there are reasons to be po sitive with limited land supply, immigration, and a growing population. However, on the other side, mortgage holders have been used to an era(s) of low interest rates, and this is all about to change in our view.

Residential mortgage rates have already been inching higher, but this process could accelerate in 2018. Will this this signal a rush for the exits? Time will tell but it is interesting to see the hot spots are finally showing signs of cooling.

The latest figures from Domain group show that Sydney’s median house prices fell 1.9% in the three months to September. This was the first decline in almost two years with rising interest rates taking a toll on investor demand. The median house price came in at $1,167,516 while the national median price fell 0.5% to $819,455. Prices in Melbourne did rise, but the 1.3% median gain to $880,902 was the weakest in three years.

I still don’t think we will necessarily see a GFC style housing crash (thanks to the work of APRA), but I wouldn’t be su rprised if  the hot spots continue to soften. This should also be good for listing activity, which will benefit the likes of McGrath and Domain Group itself.

On that note our Head of Research Greg Smith was asked at yesterday’s webinar whether Fairfax’s share price would tumble if it sold out of Domain completely. Greg made the point that the option was ruled out already by management when they turned down the bid from private equity for Domain alone. A partial sell-down wi ll though achieve the best of both worlds and will allow significant value to be unlocked (and as Domain is re-rated to a more appropriate valuation)., one of the best performing stocks on the ASX over the past decade, has done so with just a free float of 20%. News Corp owns 80% of REA. Domain is better positioned and more liquid w ith a free float of 40% with Fairfax holding 60%.

Fairfax also has some fantastic other digital properties in Stan, while several of the traditional media asset s are starting to turn around. The market seems to be working this out (and also has been reminded by takeover action in other ‘value’ plays). Fairfax was up 2.6% yest erday to 98.5 cents. I think yesterday’s breakout marked a switch in focus by investors to the upcoming demerger of Domain and the value that will be soon released to shareholders.

Golden week not quite as golden  

 Hong Kong-listed casino operators were under pressure again in trading yesterday, with Wynn Macau, MGM China and Sands China dropping 1.9%, 2.0% and 2.6% respectively. The stocks are holdings in our Global Opportunities and Asian portfolios.

The aggregate number of visitor arrivals to Macau in the recently concluded Golden Week holiday period was reportedly u p 10.3% year-on-year to 910,631. Mainland Chinese visitors made up the bulk of these at 696,636, up roughly 11%. While that was a positive trend, weighing on sentiment were brokerage estimates that gambling activity was softer than expected, although gaming revenue for the period is still expected to be up year-on-year. Official data for the month is due in early November.

The primary trend in MGM China (and for the other Macau casino stocks we hold) is up. I see the recent selloff in the Macau casino stocks being a correction within a primary bull market.

 Disclosure: The Fat Prophets Global Contrarian Fund declares a holding in Fairfax, Wynn Macau, MGM China and Sands China.

Carpe Diem!

CEO | Fat Prophets
Find out more about Fat Prophets Global Premium Stock Research by registering your details below: