Market Commentary - November

Glenmore Asset Management

December 2023

Funds operated by this manager:

Glenmore Australian Equities Fund

Hedge Clippings | 15 December 2023

No wonder there's a property crisis - and it's not just because in the 12 months to 30 June Australia recorded a net annual gain of 518,000 people, with migrant arrivals up 73% year on year to 737,000. Temporary visa holders numbered 554,000, while departures decreased marginally by 2% to 219,000. To what extent this represents a catch-up post COVID remains to be seen, but with a population of just 26 million this represents a huge influx - and a massive supply/demand imbalance when it comes to housing and infrastructure.

Australia's economy has always benefited from migration, and with 910,000 jobs created over the last two years, and historically low unemployment, there's nothing to fear from the numbers.  Australia needs migrants to fill job vacancies, and to maintain the record of growth. As the federal government announced this week, going forward the "mix" of migrants is to change, although we're not confident that when they announce the details they'll get the balance right. Being politicians, there's always the risk they'll make decisions based on the next election, rather than what's best for the long term economic and social benefit of the country as a whole.

Even though unemployment inched up by 0.1% in November to 3.9%, with 19,000 joining their ranks, employment increased by 61,000 people, resulting in the employment to population ratio reaching a record high of 64.6%, and the participation rate also at an all time high of 67.2%. But back to property...

All too often Hedge Clippings' focus is on interest rates and inflation. However, in spite of the Doomsday merchants and some so-called property experts predicting a 20% to 30% fall in property prices and widespread mortgagee sales as the RBA jacked up interest rates, this hasn't occurred. Prices have remained strong. One reason - and possibly the major one - for the property crisis in Australia is simply the imbalance between supply and demand - economics 101. According to Brook Monahan of Mosaic Property Group, who operates a highly successful building/development business in SE Queensland,  Australia wide in the year to March 2023, homes were needed for an additional 226,000 households. Only 170,000 were completed. Next year is worse, with a forecast of just 153,000 new homes completed.

As a nation, Australia has never completed more than 191,000 new homes, and the ten year average is 173,000. The target requirement is 240,000. In other words, we're simply going backwards, and cost pressures and lack of effective decision making by governments of all persuasions is not going to help. As Monahan continues, until there is action on a policy front (because winding back migration is not the solution), the current housing shortage will continue to drive rents higher still, and worsen housing affordability.

Forecast reductions in interest rates towards the end of 2024 on the back of falling inflation won't help, although it will help those with existing mortgages.

And so as we end 2023 and look both backwards and forward, we'd have to say it's been a challenging year, and next year is likely to be the same. Meanwhile, Hedge Clippings will be taking a short, but (we think) well earned break, so this will be the last edition before we return in the New Year. Until then, we'd like to thank you for your time and attention over the past year, and wish you and your family a Happy Christmas, and a safe, healthy and prosperous New Year.

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China Property: Has the "Grey Rhino" been tamed?

Ox Capital (Fidante Partners)

December 2022

Stabilization of property market in sight = Time to buy quality growth stocks in China.

Relative to most governments in the world, the Chinese authorities proactively controlled and deflated the property
market bubble to sustain a stable economy in the long run. Policy measures, including tighter lending standards and
house price restrictions, were put in place to dampen real estate speculation while containing escalating home and
land prices. Notably, latest statistics from China indicate signs of stabilization in the property market.

1. Policy measures have been effective: Measures put in place over two years ago have been effective and
authorities have started relaxing some policy measures given :

1) Property sales are down ~50% from 2021 levels (near 2015 levels).

2) Housing starts have declined over 60% from peaks to 2023 YTD. Urbanization rate in China is only ~60%,
much lower than that of developed countries, and the lack of new starts in the system will ultimately reduce
overall supply (less completions) in the next few years. As such, supply and demand dynamics will increasingly
tighten.

2. Affordable housing vs. other counties: China property prices are affordable relative to other EM/DM counties
while affordability will improve further as mortgages rates decline.

3. Stimulating growth: The Chinese authorities have started to stimulate the economy, showing an intention to boost growth, increase consumer sentiment and investor confidence. We believe further reforms are likely to mitigate risks to the broader economic recovery. Notably, our base case for China is that of continual policy easing and continued government stimulus, an environment ripe for improving economic activity.

Equity market correction provides entry point. Although we do not believe it is the time to buy China developer stocks given structural headwinds facing the sector (i.e. Lower household formation), and we believe the property sector is set to stabilize rather than a robust recovery.

However, we do believe this set-up of "stimulating growth" is a similar playbook to the GFC in USA and Europe in 2009 when it was a great time to own quality growth companies at deeply discounted valuations. As such, we view a similar set up for many quality growth stocks in China at inexpensive valuations now.

Funds operated by this manager:

Ox Capital Dynamic Emerging Markets Fund

Why government bonds remain a natural choice

JCB Jamieson Coote Bonds

November 2023

Funds operated by this manager:

CC Jamieson Coote Bonds Active Bond Fund (Class A), CC Jamieson Coote Bonds Dynamic Alpha Fund, CC Jamieson Coote Bonds Global Bond Fund (Class A - Hedged)