When we talk about stocks that may be
affected by the housing downturn it is complex for many reasons; It is a truism – but some will be more
affected than others.
There are few stocks that are purely
Australian housing related. And stocks
that will experience a direct hit are spread over many ASX sectors – such as
Materials, Realtors and of course the likes of banks and other financial
services companies will feel the effects of a sustained downturn.
Some stocks
for example may be part of the Materials sector but are more focussed on non-dwelling
construction rather than housing.
Some stocks will be hit by the buying and
selling of houses, whilst others will be affected if there is a correlation
between downturn in buying as opposed to a downturn in housing construction.
Housing construction has been a major
driver of the domestic economy for many decades. The Asian buying is a relatively short-term phenomenon.
Certainly, a downturn in buying or selling
will flow through to housing construction as both are affected by the same
factors – e.g., tightening of credit, rising interest rates, consumer
confidence etc.,
There are many would be buyers who have
been sitting on the side lines waiting for this pullback.
But now that it has come many will not be able
to obtain a loan or big enough loan to buy their dream.
One thing I do know from riding out many property
pullbacks over my years is that any hiatus is followed by a burst of activity
and a new sustained surge in construction as there is a constant shortage of
stock. Australia is not building enough
stock for future demand. It is a classic
boom bust pattern.
So, the scene is complex in Australia when
it comes to looking for investment opportunities in building/housing related
stocks. And this is where technical
analysis comes into its own. You do not
need to understand my long preamble.
The stocks that I have shown below are
material suppliers to housing construction – whether that be new or renovating. And certainly, there is a tight correlation
between the latter and the buying/selling of houses.
Here we go:
Adelaide Brighton (ABC:ASX) - Weekly Line Chart
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Click to Enlarge
Boral (BLD:ASX) - Weekly Line Chart
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Click to Enlarge
CSR (CSR:ASX) - Weekly Line Chart
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Click to Enlarge
James Hardie Industries (JHX:ASX) - Weekly Line Chart
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Click to Enlarge
The sample stocks show conforming patterns. They are all on a slide.
Where they land is any one’s guess.
The above charts are weekly, so they will take a while to play out.
It is not worth taking a punt on such stocks – if you are a long-term player.
If you are a trader, then there are some fantastic opportunities ahead.
Enjoy the ride
Tom Scollon
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