Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), & CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 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's one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written, yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

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

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - author of Things That Make You Go Hmmm, one of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, 'MacroBusiness'.

Friday, 2 September 2016

Capex shrinks - but outlook improves

Mining declines continue

The ABS Private and New Capital Expenditure survey saw total new capex decline by 5.4 per cent in the second quarter to be 17.4 per cent lower over the year. 

This is a plenty worse result than had been forecast in various over-optimistic quarters.


Mining capex continues to crash back to earth from quarterly peak of $24.5 billion down to just $10.7 billion in the June 2016 quarter, and a walloping 36 per cent lower than one year ago.

Ugh.

Even the trend estimate for mining crashed by 12.5 per cent in the June quarter alone.

The only silver lining here is that over the three months to June mining investment is 12.5 per cent closer than it was to its inevitably approaching nadir.


State versus state

As covered here previously, capex in the state of Queensland took a severe beating between 2013 and 2015 - halving in only two years as the major LNG projects transitioned towards production - and this has been reflected in some high rates of regional unemployment and some shocking economic conditions across great swathes of the state. 

Now it's finally time for Western Australia (WA) to feel the burn, with total capex in the quarter some 34 per cent lower than a year ago.

With quarterly capex of $8.5 billion WA still has a long way to fall as the mega LNG and iron ore project-driven declines wash through (including Gorgon and Roy Hill).

In fact, the capex data lags by several months, so in reality WA capex has probably already declined substantially back towards its long run average.

Capital expenditure in the Northern Territory is holding up reasonably well for now at $1.3 billion, thanks largely to the giant Ichthys LNG project.

Interestingly capex in New South Wales in Victoria is actually rising as low interest rates help to spur investment.

Although NSW and VIC do have some coal mining projects, the resources investment boom was never such a big deal in these states, and therefore there is no bust. 


Brighter days ahead

Despite the ongoing gloomy results for actual capex, the third estimate for 2016/17 of $105.2 billion was far ahead of market expectations of well under $100 billion, and some 15.2 per cent better than the second estimate thrown out last time around.


The sub-indices show that while mining investment remains in a quagmire, the outlook for manufacturing and services industries is steadily improving.

Driven by industries other than mining, capital expenditure on equipment, plant and machinery increased by 2.8 per cent in the June quarter, which should help to keep real GDP growth positive in the second quarter, even if only marginally.

It's worth noting that the index of commodity prices has been rising since February. Whether that makes much of a difference to mining investment I'm not sure (the gut feel says not).

As you can see in the unshaded bars in the chart above, in recent years estimates for total capex have generally improved as the financial year has progressed.

In fact, Estimate 1 for 2016/17 was a catastrophic $82.6 billion, so an estimate of $105.2 billion represents a massive 27 improvement over the past six months.

The big picture is that mining capex is capitulating at a serious rate of knots for the regions that benefited most from the boom, spilling over into investment plans in related input industries.

The somewhat brighter news if you live in the big cities is that investment is now rising again in 2016, having sagged in the preceding couple of years.