Animal spirits are returning to Australia, with Transurban being bid for by Canadian pension funds, AXA by AMP and AXA’s French parent and Aurora Place – Sydney’s ‘best’ building – by a foreign consortium, at an aggressively low yield. Several other property deals have also been consummated recently, giving theoretical valuations a genuine underpinning. Despite the evidence of these transactions, large swathes of the Aussie market – utilities and property – remain unloved and clearly cheap, presenting a haven of high yield and predictable cash flow for the prudent investor. Commercial property is already ‘hot’ in the UK (we cannot understand why), and with the phoenix-like resurgence of General Growth Properties in the US – debt has gone from 10c in the dollar to near par value again – Australia presents a great opportunity for the specialist property investor to access a bargain. This is in stark contrast to Hong Kong and Singapore, where stocks are expensive and recent issuance has been opportunistic. In particular the float of Capital Mall Asia at a large premium to NAV when several of the constituents are already listed at lower valuations looks a great deal for the vendor and a spectacularly bad one for the buyers. Elsewhere in North Asia there seems no let-up in IPOs, despite an unhappy post-listing experience for the majority, with the Wynn and Sands listings proving poor investments due to excessive valuation expectations on the part of the vendor.

An exception to our dislike of Asian property stocks is in the arena of Chinese investment property, where the stocks are viewed as dull relative to their highly geared, development-oriented peers. As a result the valuations are attractive and they, along with some of the telecom and toll-road stocks, provide an attractive option on a possible revaluation of the Remnimbi, which is clearly becoming more of a policy option for Beijing. It is also likely that investment property will start to figure in institutional portfolios and this will result in capitalisation rates falling. The bad news is that some of the markets are currently oversupplied – Pudong in Shanghai for example – so it is important to pick companies with strong balance sheets and grade A assets. A couple of these now figure in the portfolio.

A common refrain from bullish market commentators is that as we are now recovering from recession, stocks should go up. Any data that shows positive sequential growth is good enough to buy more. This Pavlovian reaction is entirely fair at turning points and when the data was perceived to be moving in the opposite, downward direction. It is woefully insufficient when stocks have retraced all or most of their 2008 decline and are trading at or near all-time highs. We can find an increasing number of examples of this type of price action and in many cases they are cyclical companies where earnings are at a fraction (and sometimes absent altogether) of 2007 highs. The issue here is not whether we have a recovery. It is whether we get back to peak profits in the next year or so and in most cases this is a bet we feel disinclined to take. An environment of corporate austerity and a massive fiscal impost on the consumer allied with an ongoing reduction in Government employment is not conducive to this kind of profit rebound and hence our weighting in cyclicals is extremely low.

We have written on a few themes recently which touched on new, renewable or just more efficient energy production and these themes continue to provide some very attractive opportunities. Regular readers will be aware of our positive views on platinum and the 50% upward move in the price of Rhodium (another of the Platinum Group Metals) this month is very supportive of the underlying supply / demand picture. Rhodium is mined with Platinum and Paladium in small quantities and used in autocatalysts. There is no investment demand and jewellery use is de minimis. The price surge is a clear manifestation of a supply shortage of all of the Platinum Group Metals, possibly not surprising with Chinese auto sales rising at significant double digit rates and with some western world production being turned back on after the scrappage schemes exhausted excess inventory. If you think Gold is a little bit too popular at the moment, Platinum looks a better bet.

Elsewhere our enthusiasm for underground coal gasification remains undiminished and we are particularly intrigued by companies where the ‘technology’ moniker has obscured some fantastic old-fashioned value, with equity values well below the value of their exploration and production tenements, even if conventionally mined. The technology may still be in the late stages of commercial testing but certainly does not have a negative value.

We are also intrigued by California’s decision to ban the sale of energy inefficient televisions. The point here is not that California can ring-fence its appliance market – it cannot – but it sets an important precedent for other jurisdictions to follow and is a massive shot in the arm for the new generation of higher picture quality and lower power usage LED-lit televisions. This market is showing explosive growth at present, and as the volume of LEDs rises, the costs fall. This speeds the day when the cost of replacing conventional fluorescent and incandescent lighting with LEDs becomes economic and at that stage the market will go truly parabolic. The current bottleneck is in the supply of reactors to produce the Gallium Nitride wafers, a market currently dominated by Aixtron of Germany (a snip at 60x earnings, up 380% this year). Luckily there are some new entrants to this market in Korea and we find opportunities in these names as well as the chip fabricators in Taiwan which are seeing strong growth in a market where ownership of intellectual property is as important as access to capacity.

Amidst the enthusiasm for the prospects for lithium ion batteries and plug-in fully electric vehicles, an investment angle often overlooked is for the next generation of batteries which are liable to be powered by di-lithium crystals. The technology is complex, but does not change the laws of physics and should provide a quantum leap in performance. Investing in this early phase technology is limited to just a few names but our favourite is Alpha Centauri Mining, listed in Perth and Vancouver. CEO Kirk has done a great job in turning the company around from a financial black hole, and for the investors who managed to cling on through the bad times, great rewards are on offer.

The great and the good of the financial world would be well advised to avoid all media outlets at the moment, but do not seem to be able to help themselves. To hear a scion of the Private Equity world complain about the slow pace of banking restructuring when it was lending to the likes of him that put us in the mire in the first place beggars belief. So too with Goldman where the generous offer of 2% of the bonus pool to lend to corporate America would be perhaps be more usefully spent on genetically engineering a very small camel and constructing an enormous needle. It is open season on bankers for politicians and taxation regimes and every time a banker tells us how useful they are it makes them look even more venal and useless and will attract punitive taxation and regulation. They may get their reward in the afterlife, but it will be tougher here on earth for a while.

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