CEO INSIGHTS – Week Ending 14 December 2018 By NAOS Asset Management

"Business conditions are pretty strong, businesses are planning to do more investment, unemployment is coming down, inflation is picking up and wage growth is picking up. So that's an environment where you wouldn’t expect that would warrant a tightening in [credit] supply." 

Christopher Kent, Assistant Governor, RBA

As part of the NAOS investment process, we pay particular attention to the comments made by company CEOs and business leaders in order to gain a greater understanding of the current investment environment and key trends that may be emerging. Below are quotes from the week which in our view detail some of the most important and prominent industry trends and economic factors impacting their businesses.

Australian Economy

"We urge the Australian government to follow the lead of the British government, who have appointed us to offer the option of immediate early payment to all government suppliers at a-cost of less than 1 percent per annum (in British pounds)."

Lex Greensill, Founder, Greensill Capital

"In the period ahead, it seems plausible that term and credit risk premia will rise, which will increase costs for all borrowers, Australian banks included."

Christopher Kent, Assistant Governor, RBA

"Business conditions are pretty strong, businesses are planning to do more investment, unemployment is coming down, inflation is picking up and wage growth is picking up. So that's an environment where you wouldn’t expect that would warrant a tightening in [credit] supply."

Christopher Kent, Assistant Governor, RBA

"The outlook for the Australian economy as a whole remains positive, with unemployment and inflation both relatively low. Governments have committed to significant infrastructure projects, and the lower Australian dollar is helping exports, especially in services."

Brain Hartzer, CEO, Westpac

"Although credit quality is likely to remain a positive, low interest rates, slowing credit growth, and a fall in consumer and business confidence - especially about house prices - puts pressure on bank earnings growth."

Brian Hartzer, CEO, Westpac

Global Economy

“The tariffs imposed on Chinese exports did leave a mark on the Chinese economy.”

Frank Witter, CEO, Volkswagen AG

"We continue to see a strong macroeconomic environment for home improvement [in the US]."

Marvin Ellison, President and CEO, Lowe's Companies

“It’s a climate of great uncertainty.”

Mario Draghi, President, ECB

Technology

“Digital platforms are unavoidable business partners for many Australian businesses. Google and Facebook perform a critical role in enabling businesses, including online news media businesses, to reach consumers. However, the operation of these platforms' key algorithms determining the order in which content appears is not at all clear." [The ACCC is recommending a new regulatory body be set up to make sure Google and Facebook aren't abusing their market power in digital advertising]

Rod Sims, Chairman, ACCC

Telecommunications

“The real value of 5G spectrum is much higher than simply the one-off purchase price at auction, 5G will deliver far greater value by fostering economic growth through enabling new applications and services for customers."

Chris Althaus, CEO, Australian Mobile Telecommunications

"If TPG remains separate from Vodafone, it appears likely to need to continue to adopt an aggressive pricing strategy, offering cheap mobile plans with large data allowances."

Rod Sims, Chairman, ACCC

Energy

“We work to leave a positive impact on the planet.....Together with our partners, we intend to continue investing in renewable energy to help create a better future for the builders of tomorrow.” [The LEGO group now says it is running entirely on renewable energy after reaching its 100 per cent target three years ahead of schedule]

Bali Padda, CEO, Lego Group

“Without a bold and concerted effort to deploy an energy policy for Australia, consumers will continue to see the incredible rise in costs and the terrible effects of those higher costs on jobs, economic growth and energy security.”

Louis Vega, President, Dow Australia

"Now it is time to accelerate the development of a high-tech lithium manufacturing sector in our own backyard."

Simon Birmingham, Federal Trade Minister

Insurance

"We have moved to a more conventional reinsurance structure with significantly increased catastrophe protection that will deliver better profit outcomes in extreme (severe or benign) catastrophe years as would have been the case in 2017 and 2015 respectively."

QBE Market Update

Agriculture

"Rural lending is similar [to residential]. It is tightening. The credit controls, the focus on responsible lending. It's all coming through more strongly."

Mark Allison, CEO, Elders

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Important information: This material has been prepared by NAOS Asset Management Limited (ABN 23 107 624 126, AFSL 273529) (NAOS) for general information purposes only and must not be construed as investment advice. Certain economic, market or company information contained in this material may have been obtained from published sources prepared by third parties. Nothing contained herein should be construed as granting by implication or otherwise, any license or right to use such third party content without the written permission of the owner.