Hey, this is getting fun. You can’t help but watch the Aussie stock market with interest now. While US stocks have dawdled somewhat of late, the All Ords is now a whisper from hitting 6000 points. It’s a time to be bullish on stocks.
And why not? Back on 1 March, I told Money Morning Trader readers that the recent earnings season revealed an interesting fact: The top 200 Aussie companies have $108 billion dollars of cash on hand. That was the highest CommSec had seen in over 14 years.
The potential was clearly there for higher dividends or stock buybacks. We’ve seen these already from QBE Insurance and a few others in recent weeks.
And we saw it again this week from South32 Ltd [ASX:S32] on Monday. It announced a US$500 million share buyback. This is when a company buys back its own shares. This reduces the outstanding number of shares available, leaving more earnings for existing stockholders.
Even after this, South32 will still have $US1 billion on hand available for acquisitions. I think we’re going to see more of these in the near future.
The big miners shelved a lot of exploration and development during the mining downturn. You can only do that so long in the natural-resource business. Operating miners are always running down their reserves. Either they have to find more reserves via exploration, or they must go out and buy projects that have already started exploring and developing.
South32’s chief executive said in the buyback announcement that the company’s net cash balance continues to build. That’s bullish in my book. The directors must view the outlook for their commodities reasonably positively too. They wouldn’t pay out the cash otherwise.
Be aware: This is not a recommendation. In fact, South32’s share price will probably either pause or drift lower in the short term. The good news is out on this one for now.
It’s a good example of why Aussie stocks can keep going higher from here.
South32 is, of course, a miner. Australia excels at mining. We don’t have much in the way of high-tech manufacturing, though. That’s a pity, as it’s not beyond the ken of this country.
If you put me as dictator of Australia for a while, I’d set up a development bank to make it happen. That’s what China is doing. They will eventually reap huge dividends from this, while Australia sits full of empty holes from digging.
Beijing has recently launched a US$300 billion plan called ‘Made in China 2025’. It wants to become self-sufficient in a range of industries, notably semiconductors. This involves state loans to fledging industries and subsidised research.
We can already forecast how this ends because it has already happened in Japan. The trajectory of both nations is quite similar when you think about it.
Japan was dirt-poor after the Second World War. It made cheap goods immediately after US occupation. Over time, the country used its banks to fund strategic industries to develop high-tech, export-focused industries, most famously in car manufacturing.
Japan’s government used various sticks and carrots to discourage consumption, focusing on channelling the country’s resources into productive investment. It went on to become the richest country in the world. It’s still living off those massive trade surpluses earned over the course of 40 years.
That’s China’s playback as far as I can tell. Now we’re seeing it in action. Bloomberg reports that Tsinghua Unigroup has secured US$22 billion to pursue acquisitions in the quest to build a world-class semiconductor industry.
Chinese Investment Opportunities
Perhaps the oddest thing about all this is how little attention Chinese investment opportunities and developments receive. They really are building the most incredible economy up there. They’ll keep minting millionaires and middle-class wealth.
That’s also why Chinese travel is going to be one of the biggest growth industries we’ll see in our lifetime. So much money is going to pour out of China that it will leave the world breathless.
Here’s a symptom of this: This month saw one of the most unusual — and notable — deals in over a century of aviation. ANA, Japan’s largest airline, is buying a ‘supermajority’ stake in a low-cost carrier.
There’s nothing particularly unusual about a large company acquiring a small one. But here’s the twist. ANA doesn’t especially want to own the business it’s buying.
It desperately wants pilots.
ANA wants to use the prestige behind its name in Japan to help its low-cost subsidiary recruit staff.
Such is the worldwide shortage of flight crews that the company is prepared to do this. The global expansion in tourism is so prodigious that it’s straining the aviation industry’s ability to serve clients.
Rising wealth across the world…a retiring baby boomer generation…and the arrival of the biggest middle class in history will do that.
It’s not beyond reason to suggest the Chinese middle class could double or even triple from here. Imagine what the world will look like then.
That’s one reason why we keep saying the same thing over at Cycles, Trends and Forecasts: The world is going into the biggest boom of all time. Get on board for the ride here.
Associate Editor, Cycles, Trends & Forecasts
From the Port Phillip Publishing Library
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