Is the Lucky Country losing its lustre?
Another factor encouraging Kiwis to come home for work, has been a tough round of cost-cutting and staff reductions by industry in Australia.
AUSTRALIA seems a bargain. Their dollar is worth about the same as ours – making it a great spot for a holiday.
Anything you buy there should have fallen 23 per cent over the past two years including accommodation, travel, cafes, clothes, accommodation . . . and shares.
However, you probably won’t notice much, if any, difference in the prices of Australian goods in the cosy duopoly we have here between New World and the rapidly expanding number of Australian-owned Countdown supermarkets springing up in many suburbs. There is talk of a new Countdown replacing an old bowling club in sleepy Waikanae Beach, north of Paraparaumu, presumably to take advantage of housing growth expected from the new state highway being built nearby.
Despite a more favourable exchange rate, supermarkets seem loathe to lower the prices of many Australian imports, including wine. Or of another favoured tipple in our home – Bundaberg ginger beer. In one Kapiti supermarket it seems dearer than last year at $17.70 for a pack of 10. Sometimes a pack can be bought on special for around $14: simply confirming the substantial profit margins these supermarkets enjoy.
Maybe we need Aldi to bring more competition to our supermarket scene. The German discount grocer, founded in 1913 on the outbreak of World War I, now has 7000 stores around the world, and is a fast growing force in Australia where it has 340 outlets.
Aldi stores don’t provide a great shopping experience, with an extremely limited range of brands – but they are much cheaper. Aldi’s growth is as much
Aldi’s growth is as much a worry to Australia’s Coles and Woolworths (it is hurting Woolworths’ share price) as it is in the UK to Tesco and Sainsbury. a worry to Australia’s Coles and Woolworths (it is hurting Woolworths’ share price) as it is in the UK to Tesco and Sainsbury.
So far, the recent hefty fall in the Aussie dollar doesn’t seem to have encouraged many Kiwi companies to buy cheaper businesses across the Tasman, as had been hoped.
Nor is it proving the windfall that many Kiwi investors might have expected.
Firstly, it has cut their dividend income. This didn’t matter so much when the Australian dollar was strong, as it helped compensate for the Canberra government’s refusal to pay tax imputation to Kiwi residents on profits earned on their shares in Australian companies. What makes this worse is that often a substantial proportion of these earnings are made by their New Zealand subsidiaries. Canberra seems unlikely to move on what should be regarded as a Closer Economic Relations issue as it confronts major budget and economic issues.
Secondly, Kiwi share investors are finding it harder to find bargains at current Australian prices. While their companies are facing harder times because of a tougher business and economic climate – with the mining and oil sectors under particular stress – this has not led to significant falls in many prices. These have remained fairly stable following the latest six-month profit reporting season which more or less met analysts’ forecasts.
Broadly, many Aussie share prices are riding high because of similar factors here. Interest income on fixed interest or from bank deposits is low, making investors chase higher-yielding stocks.
While seldom mentioned, another factor encouraging Kiwis to come home for work, has been a tough round of cost-cutting and staff reductions by industry there. A family friend, who has been earning heaps on offshore oil rigs off West Australia, has real worries about his job, just weeks after buying a house in Perth.
Many people in this country are not aware of the pressure Australian fund managers, investing millions on behalf of people in retirement schemes, put on company managements to perform.
With easy profits, especially from mining companies, no longer easy to secure, fund managers are pressuring firms to increase dividends. The only way for firms to keep their support (and hold up their share price) is to delay expansion plans and carry out severe cost cutting, especially in jobs . . . and increase your dividends.
Adding to the difficulties of finding a good buy at a reasonable price are the sharp gains many stocks familiar to Kiwis have shown over the past 12 months. Examples include AMP up 42 per cent, Commonwealth Bank of Australia (31.5 per cent), Brambles (26 per cent), Ramsay Health (42 per cent), Sydney Airport (33 per cent) Telstra (34 per cent) and Westpac (24 per cent).
You need confidence to follow analysts’ buy recommendations on stocks in riskier sectors – notably mining and energy. Target prices for many stocks in these sectors are much higher than present share levels, based on the assumption that eventually demand and prices for their coal, iron ore, or oil will pick up again.
Optimists believe that in time Australia will resume its role as the Lucky Country and present prices of mining stocks will look cheap. But how long will you have to wait?