Evidence is mounting that last month's federal election has failed to halt a business investment strike. A report released by Deloitte Access Economics says that "it's possibly not until 2016-17 that we see growth in excess of 3 per cent" for the economy as a whole.
Its author, Deloitte Access Economics partner Stephen Smith, says that "for the first time in a decade, the total value of investment projects at all stages of construction has now declined for three consecutive quarters". This highlights the need for government investment "as despite the current low interest rates, retail spending continues to be soft with few signs of a revival, while non- residential building activity remains on shaky ground".
The Deloitte report highlights that prior to the GFC, office construction accounted for 25% of all non-residential buildings approved. This has now fallen to 10% and office vacancy rates are at their highest since July 1999. This report echoes a prior article, prompted by Jones Lang LaSalle research.
Mr Smith said public infrastructure spending may build a bridge (so to speak) for the transition from a waning resources sector to the non-mining sectors of the economy. This aligns with our self proclaimed 'infrastructure Prime Minister' Tony Abbott.
So our goal is twofold. Focus on stocks that will benefit from a coming boom in infrastructure spending and be circumspect with those exposed to retail and CBD office buildings.
For infrastructure, transport companies like Asciano (ASX: AIO), Toll Holdings (ASX: TOL) and Qube Holdings (ASX: QUB) are one alternative. Another is utility stocks such as AGL Energy (ASX: AGK) and Spark Infrastructure (ASX: SKI). Transurban (ASX: TCL) also represents a play on toll roads both in Australia and the USA.
Finally, caution should be exercised for retail stocks such as David Jones (ASX: DJS) and Myer (ASX: MYR) and some property trusts such as General Property Trust (ASX: GPT), which has a large exposure to Australian retail via its portfolio of 17 shopping centres and its interest in its Wholesale Shopping Centre Fund. The same is true for Dexus Property Group (ASX: DXS), which specializes in owning, managing and developing office, industrial and retail properties.