Weekly Reports | Dec 16 2022
Weekly broker wrap: property sentiment decline, business sentiment lift, China exposures rally, gaming industry ARPU increases.
-Ongoing decline sees property sentiment return to pre-covid levels
-Slight improvement in business sentiment, with less concern over a severe economic downturn
-China-exposed stock valuations yet to fully account for market reopening
-Gaming industry reports bumper per user revenue growth, despite declining user base
By Danielle Austin
Property sentiment remains on downward trend
Property sentiment further declined in December, now below pre-covid levels, as the combination of higher interest rates and likely further hikes to come, a rising cost of living and reduced access to financing weighs on the consumer outlook.
According to ANZ Bank's latest property council survey, sentiment continued to decline across both residential and commercial property. The bank also reported a decline in expectations for national growth, with macroeconomic factors raising concerns of an impending hard economic landing.
ANZ Bank anticipates interest rates will continue to climb over the first half of 2023, further increasing pressure on property prices. Fear of increasing costs remains front of mind for many consumers, with 30% of survey respondents reporting they expect costs to increase 5-10% over the coming year despite early signs that costs are easing.
Global recession probable, but mild, according to Business Sentiment Index
While businesses are less concerned that a severe economic downturn will eventuate, they remain pessimistic about the economic outlook. Many feel a near-term global economic recession is highly probable, but that this downturn will be mild.
According to Oxford Economics, first signs of stabilising business sentiment have emerged, with growth expectations rising for the first time since the start of 2022. Sentiment declined fairly consistently throughout the last year, but Oxford Economics now feels uncertainty is contained.
Oxford Economics reports the Global Business Sentiment Index remains at 96.9, a difference of -2.0 percentage points to index level reported before Russia's invasion of Ukraine. With an index reading of 100 an indication that businesses anticipate global growth in the next twelve months is largely expected to reach the same level as predicted pre-pandemic, the latest index result implies businesses anticipate global growth to be -3.1% below the level predicted pre-pandemic.
Stocks yet to fully price in emerging China reopening
As a reopening of the Chinese market begins, analysts question whether an early rally from equities linked to the region can be sustained or has run its course. Some relief to covid restrictions and the announcement of meaningful property stimulus from the Chinese government has indicated a reopening of the market, with equities linked to the region benefiting and rallying through November.
Despite a widely reported decline in exports to China, the region remains Australia's biggest export earnings customer. UBS has analysed thirty-five China-plays — stocks with exposure to the Chinese market including resource equities, and food production, transportation, tourism and education stocks. According to the broker, China-plays are trading at an -18% discount to pre-pandemic price/earnings ratios, which could imply an economic reopening is yet to be fully priced in. The broker highlights stocks outside the resource sector continue to trade at a -21% discount to pre-covid prices.
Gaming industry reports a first ever decline in users, but revenue growth remains strong
Despite the gaming industry reporting a first ever decline in its user base over the last year, industry wide revenue growth was supported by an 11% year-on-year increase to the average revenue per user, the largest increase in five years.
The increase follows a 10% year-on-year jump in both 2020 and 2021, with growth, according to Statistica, underpinned by growth in the digital game segment. Average per user revenues in the digital games segment are up 42% since 2019 and close to 60% over the last five years, but have continued to decline in the physical digital gaming segment.
Finixio highlights the industry has been challenged by headwinds, including inflationary impacts and the ending of covid lockdowns across markets, in the last year. While global users declined by almost 115m, industry revenues increased 6.6% year-on-year to $197.4bn and per user revenue increased to $80.18. Statistica anticipates growth to slow over the coming year, predicting per user revenue for digital games will grow only 5.0% in 2023.
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