News Analysis: GDP growth slows; Kmart's Ian Bailey to retire; Cbus review exposes governance failings
Ankita Rai
Thu 5 Dec 2024 4 minutesWelcome to the essential investor brief, featuring handpicked news for the week ending 6th December 2024.
This week's highlights include:
-Tepid growth complicates the RBA's inflation efforts: Australia's economy faces a double bind: anaemic 0.8% growth largely driven by government spending, while the private sector investment stagnates. Although weak GDP growth bolsters the case for looser monetary policy, high inflation restricts the RBA’s options, raising concerns about the sustainability of public sector-led economic growth.
-Leadership transition at Kmart: Ian Bailey’s retirement marks the end of an era for Kmart, which, under his leadership, transformed from a mediocre retailer to a global leader in product design and sourcing. His remarkable impact on the brand leaves big shoes to fill for successor Aleksandra Spaseska, who will be responsible for driving the next phase of Kmart’s growth: taking its discount brand, Anko, global.
-Cbus' governance shortcomings: The Cbus review is a wake-up call for the entire superannuation sector. While industry funds excel in asset growth, their governance processes are lagging. The lack of rigour in assessing director skills, poor oversight of partnerships and inadequate financial assessments, highlights the urgent need for reform to maintain trust and transparency.
ECONOMY
Australia's economy is growing at its slowest pace in decades, with government spending doing all the heavy lifting.
News highlights
Australia's economy grew by 0.3% in the September quarter, driven by a record $195.8 billion in government spending, including public servant pay rises and energy subsidies. Annual growth slowed to 0.8%, from 1.0% the previous quarter.
- Takeaway: Weak GDP growth signals a slower economic recovery. This raises the likelihood of an earlier interest rate cut, with markets now pricing in reductions by April.
Retail spending rose 0.6% in October, fuelled by tax cuts and a strong labour market. Consumer sentiment also rebounded, reaching a 2½-year high in November.
- Takeaway: Improved sentiment and increased discretionary spending suggest a more positive outlook for consumer-driven sectors.
Australia’s productivity growth has dropped to 30th out of the 35 wealthiest nations, according to a McKinsey report. It warns that declining productivity threatens living standards, with business investment at recession levels and real household incomes stagnant for the past eight years.
- Takeaway: Australia’s shrinking private sector, sluggish productivity growth, and weakening competitiveness highlight the urgent need for economic reforms to sustain the country’s long-term growth and stability.
A Deloitte report on Cbus found the superannuation fund failed to rigorously assess its spending with union partners, including the CFMEU. It recommended better documentation and evaluation of whether such spending benefits its members.
- Takeaway: Cbus' governance failings, particularly its questionable spending with union partners, highlight the risks around financial management and transparency. As regulators ramp up scrutiny, investors should monitor the fund’s reforms to ensure alignment with best practices.
CORPORATE NEWS
The lithium bear market is expected to deepen in 2025, as producers are not cutting production fast enough despite recent price declines.
News highlights
Bank of America forecasts lithium prices to remain weak, with surpluses to remain until 2027. It also predicts a sharp decline in iron ore prices, potentially dropping to $75 per tonne. In contrast, uranium prices are expected to rise significantly.
- Takeaway: Lithium and iron ore prices will face ongoing pressure while uranium offers a strong growth opportunity.
Wesfarmers has promoted Aleksandra Spaseska to Kmart Group managing director, as Ian Bailey transitions to chairman of Anko Global to lead its international expansion.
- Takeaway: Takeaway: Anko’s dominance in private-label retail and its strategic moves in key markets position it as a significant revenue driver for Wesfarmers with strong long-term potential.
HMC Capital has acquired a $950 million renewable energy portfolio from Neoen, including wind and battery projects in Victoria. The deal expands HMC’s energy transition fund, which aims to raise $2 billion and targets high returns from renewable assets.
- Takeaway: The deal signals strong growth potential in Australia’s energy transition sector, and positions HMC as a key player amid rising demand and investments.
Iluka Resources' shares fell 9% after the Australian government pledged an additional $400 million to address cost overruns in its rare earths refinery project. The agreement resolves a year-long impasse, but delays have pushed out the refinery’s commissioning to 2027.
- Takeaway: IIuka's share price drop reflects concerns over funding its rare earths refinery amid delays and increased costs. While government support mitigates some of the risks, long-term success depends on securing favourable offtake agreements and managing operational delays.
Large contractors are benefiting from a more stable cost environment with improved earnings. However, pressures persist for smaller, under-capitalized businesses, as insolvencies in the sector rose to 1,431, an 18% increase from last year.
- Takeaway: Rising insolvencies among smaller subcontractors pose risks to larger firms, potentially disrupting their project pipelines and supply chains.
Until next time...
Ankita Rai is a finance journalist at InvestmentMarkets with over 15 years' experience in business and finance writing. She excels at identifying investment themes and simplifying complex financial and tech topics to provide actionable insights for empowering investors.
