A New Government And Gerry’s Four Words

This story features HARVEY NORMAN HOLDINGS LIMITED. For more info SHARE ANALYSIS: HVN

By Peter Switzer, Switzer Super Report

This new Abbott Government comes at the right time, as green shoots in the local economy are bound to be watered by a spurt in confidence — both business and consumer – and this improving economic picture at home will be helped by better data readings in China and a not so good one in the USA!

As a consequence, I’m going to repeat something I blabbed out on 2GB, in my Super Show last Tuesday night, when I was asked for a stock that was worth buying before the election that could do well after the poll? I went for Harvey Norman ((HVN)) and that’s despite the fact I have had some reservations about retail stocks for the past few years because of the excessively-saving Aussie consumer and the threat of the Internet.

One reason why I plumped for Harvey Norman was because Gerry said “the outlook was getting better” after his most recent disappointing result, and the share price went up! That’s a good sign when a chairman’s optimism is believed.

Consumers return

I played tennis with Gerry yesterday and while we did not ‘talk shop’, I mentioned the work of Professor Ron Bewley, who not only writes in this newsletter but also comes on my Switzer program on the Sky News Business Channel.

I told Gerry and our two tennis partners that Ron said we always save hard after a calamity such as the GFC or the recession of 1990 – the one “we had to have” – but, eventually, we head back to the shopping malls. In addition, Ron says he is seeing signs that consumption is starting to gain some newfound popularity.

Gerry, who is never short of a word or two, simply said: “Your friend is right.” He then slammed down one of his deceptively big serves!

Making me believe my own positive long-term outlook for stocks is the expected confidence boost that Saturday’s poll delivered. Have a look at these reactions:

• “The election result will be a positive for the residential market, especially the middle and upper ends. The recovery had started despite people’s disappointment with the previous government but this will be a catalyst for those connected with small and large business to feel more confident. This should shift the share market and property in positive directions. With low interest rates, an improving economy and a new Government, the market should continue on its recovery and new growth cycle.” (John McGrath of McGrath Estate Agents)

• "The expectation is one of improved consumer sentiment, which will improve the level of stock coming into the market and remove the potential for a bubble to occur in certain parts of Australia, thus allowing for a more balanced market with steady growth." (Charles Tarbey, the founder of Century 21)

• “The shareholders of Australia have now spoken with a concerted voice,. They have voted for a new management team and given them a clear mandate. I think it now removes the last true barrier to broader confidence emerging.” (Charlie Aitken of Bell Potter Securities)

Singing from the same hymn book, the Australian Retailers Association looks for an uptick in confidence too, but it wants to see some real signs of progress between now and the New Year.

• “Retailers should start feeling a little more positive about the future under the Coalition’s small business policies as they are implemented.” (ARA’s CEO, Russell Zimmerman)

Rational exuberance

I think it is now rational to be optimistic, especially with the housing sector on the rebound. House sales were up 13% in 2012-13 and industry experts say many vendors were waiting until the election was over to sell.

Helping my story is the improving China outlook (with great trade figures over the weekend) and the USA, which had worse than expected jobs growth – 169,000 instead of 180,000 – and that could delay the start of QE3 tapering, which should help stocks. And if stocks don’t dive, then confidence again will be helped.

A final big plus for my optimistic scenario is the profit outlook for Aussie companies from the analysts. Thomson Reuters tips a 7.5% increase over 2013-14 and then 10% over the next financial year, which has to be good for stocks. I reckon these guesses are on the conservative side!

Saturday’s election result, plus a better than expected world economy, along with low interest rates and a lower dollar has to be good for our stock market.

It’s now our job to make sure we steer you in the right direction when it comes to constructing your portfolio.

Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.

Content included in this article is not by association necessarily the view of FNArena (see our disclaimer).

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms