Australia is under pressure, but it is not all doom and gloom, says analyst Scott Ryall in the CLSA Global Themes 2015 report.
GDP growth is now seeing the headwind from declining resources investment and lower commodity prices. Consumer and business confidence is soft. The Australian dollar is falling against the US dollar.
“But these are known issues,” he says. “What is not recognised is that over the next two to three years, Australia will experience a sharp increase in construction activity that has already commenced.”
“This offers strong investment prospects given what we believe is limited further downside to the A$.”
He argues that Australia still has attractions for offshore investors.
The CLSA economics team sees support at AU 80 cents to US $1, given Australian bond yields remain globally attractive and nominal GDP forecasts are better than most developed markets.
“This has not been lost on foreign property and infrastructure investors in particular who have been increasing their asset weightings to Australia since the GFC. We expect continued interest in such asset classes going forward. The government is working hard to attract investment. It has identified a number of target sectors to rebalance from resources: tourism, agriculture, education, infrastructure and healthcare.”
There are numerous sources of construction activity on the east coast, particularly Sydney and South-East Queensland.
CLSA has identified $40 billion of mixed-use tourism-related developments across Australia which are mostly being funded by direct foreign investment.
And there is a $70 billion infrastructure project pipeline which will be funded by asset recycling.
Ryall says Lend Lease is the key beneficiary of such a construction cycle. Macquarie, Boral and Arrium should also see upside.