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“The world of self-storage is not something you often hear about, but it’s an asset class we like,” says Pendal PM Julia Forrest, who co-manages property investing in Pendal’s Aussie equities team.
Record high immigration and a downsizing trend towards apartment-living should fuel ongoing strength in the self-storage industry, says Julia.
“Self-storage space in Australia represents 2.1 square feet per capita. In the US, it’s closer to 6.1 square feet per capita.
“So, in terms of available space, Australia is relatively under-serviced. There is a bit of a runway to catch up.”
Julia points to the example of ASX-listed National Storage REIT – her biggest active position in Pendal’s property strategy.
National Storage (ASX: NSR) is Australia’s biggest self-storage owner-operator with 230 centres across Australia and New Zealand.
“Now is the time for small and mid-caps to shine”, says Regnan portfolio manager Tim Crockford.
“Particularly in Europe, relative valuations have reached depressed levels that are not reflective of the underlying relative fundamentals,” says Tim, who leads Regnan’s global equities impact investing team.
“In terms of developed markets, Europe and Japan offer opportunities. In terms of emerging markets, it’s places like Indonesia and Brazil,” Tim says.
Focus on companies that are likely to grow over the next 12 months – or where the valuation is so depressed it’s priced for a highly negative drop in growth in 2024, he argues.
“Look for companies that are able to generate organic cash flows to fund at least part of their growth.
“And the remainder of the funding needs to be covered by debt that isn’t going to burden, or reverse, the positive effects of potential future cash flow growth.”
Pendal’s emerging markets team last week highlighted India as a growth story.
This week Pendal Aussie equities PM Brenton Saunders makes the case for a handful of Aussie mid-caps in line to benefit from India’s growth.
“India has around 1.4 billion people. It’s a democracy that’s had a number of false starts in terms of growth, political and economic reform.
“But now it’s had four or five years of achieving reform,” says Brenton, who leads Pendal’s Aussie mid-caps investing strategy.
“Sovereign wealth funds and private equity money are moving into the economy.”
On a recent research trip to India, Brenton observed rising literacy rates, improved education standards and a huge, skilled workforce.
Aussies were spared further pain this week when the Reserve Bank left the cash rate unchanged at 4.35%.
In its statement, the RBA retained a tightening bias against an uncertain background.
While investors expect rate cuts offshore next year, Pendal’s head of cash strategies Steve Campbell sees our cash rate unchanged in 2024.
Q4 inflation is due out in late January, ahead of the next RBA meeting in February. Steve expects a headline rate of 0.8%, taking annual inflation to 4.2%.
“We can’t see how the RBA can achieve its end-of-year 4.5% forecast – and 0.3% would be a considerable miss.
“Inflation is likely to come down to 3.5% in 2024. But unless we see significant weakness, this will remain too high to warrant a rate cut.
“Though this won’t stop the market periodically pricing rate cuts in – opening opportunities to trade duration with a long bias into early 2024.”
Most people would be aware from last week’s per-capita recession headlines that Australia’s population growth is outstripping economic growth.
But population growth – especially immigration and temporary visas – is also supporting corporate earnings, says Pendal’s head of equities Crispin Murray.
“All up, we’re probably looking at about a 3 per cent rise in the population today versus a year ago.
“People are coming to Australia with money in their pockets, setting themselves up and getting accommodation – which is driving up rents.
“Part of the reason we’re seeing resilience in the top line of companies is because they’re basically driven by nominal GDP, not per capita GDP.”
Population growth is also offsetting the effects of the ‘mortgage cliff’ which forces households into higher, variable mortgage payments as low-rate fixed loans expire, Crispin says.
“With each company we met over reporting season, we talked about the issues facing them and if they were seeing consequences from this mortgage cliff. So far, the consequences are very limited.”
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