Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

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"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

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Tuesday, 20 August 2013

BHP production volumes continue to grow - what about China?

Interesting to read the preliminary results presentation ASX release from BHP Billiton today, which announced a handsome final fully-franked 59 cent dividend for holders, a small increase on FY12. The FY13 profit was well down on the prior year, but production volumes continue to soar and look likely to be very strong in the coming year:

Source: ASX

There is certainly a theme throughout of "testing times" and a need to keep a lid on costs. The most notable point for me in the release was the projected fall in capital and exploration expenditure for the coming year.

This mirrors what is happening across Australia. The mining construction boom is passing (or, probably more accurately, has passed) its peak. The story going forward is about production, and resources exports look likely to continue to grow strongly.

The RBA's Chart Pack puts growing export volumes trend and what is happening over in China into graph form. Export volumes of resources continue to grow very sharply:

Export Volumes graph

Bulk commodities exports have been absolutely rocketing over the past decade. This means that the continued growth of China is vital, because there is a deluge of ore hitting the market which is likely to put downward pressure on that commodity price:

Bulk Commodity Exports graph

And as for where all of Australia's earth is going? Well, increasingly it's heading to China. Note how the percentage share of values of exports heading to India has waned.

Exports by Destination graph

China's GDP growth has been threatening to stall, although the latest data dump has since suggested that the red line may yet be pointing towards a number starting with a 7 (i.e. good). Will the sliding trend be arrested?

GDP Growth – China and India graph

China's monthly indicators show that Fixed Asset Investment (FAI) remains strong, as did the latest data dump. This is important for Australia:

China – Monthly Activity Indicators graph

China's property bubble remains a key worry - ghost cities and all that...

China – Residential Property Market graph

But credit growth does appear to be in a downtrend:

China – Credit and Money Supply Growth graph

And finally, China's industrial production (IP) remains on an upward trajectory, which hopefully means that China can achieve its GDP growth of 7%.

China – Output Indicators graph

Our economy is highly leveraged with regards to private/household debt, and it is now also highly leveraged against the iron ore price and our fuelling of the China boom. The future is inherently uncertain, but there is one thing that does look certain: Australia's future will not be dull!