Hamish Douglass of Magellan: Housing market top risk

The housing market is the ‘single biggest risk’ facing the economy, according to Magellan chief Hamish Douglass.

Hamish Douglass, chief executive of fund manager Magellan.

The housing market is the “single biggest risk” facing the local economy, and any pullback from Chinese investors could hit banks and the sharemarket, according to Magellan Financial Group chief executive Hamish Douglass.

Mr Douglass, who manages the group’s $9 billion global fund, told The Australian a pushback in China over money going into Australian property risked leaving the economy exposed.

“The reason the economy has been so strong is because of the massive residential construction boom, and it’s been very supported by Chinese investors,” he said.

“If we have a major correction in house prices our banks are very exposed, and the stockmarket is very exposed to both China and the property market via the banks.

“I see that as the major risk to the economy and to large components of the market. And it is correlated to the Chinese investor in our market.”

Looking offshore, Mr Douglass believes tension between the US and North Korea is currently the “biggest known unknown”, even though the market is “looking through that at the moment”.

“Our feeling is it’s unlikely to result in military conflict. I think we’re going to have a lot of rhetoric and a lot of sabre-rattling,” he said.

A major market event that could cause a crash in the US sharemarket doesn’t look likely in the near term, he says, and there are still some stocks in value, including Apple, Visa and Google parent company Alphabet. “Their prices have gone up strongly in the last 12-18 months, but so has their earnings power.”

Magellan yesterday unveiled a 1 per cent drop in net profit to $196.2 million, largely due to lower performance fees and dividend income. Underlying profit, which strips out the “lumpy” performance fees, grew 10 per cent to $234.6m.

Average funds under management rose 16 per cent in the year to $45.7bn, reflecting net inflows of $4bn. However, retail inflows of $1.7bn were markedly lower than last year’s $2.3bn.

Magellan this week outlined plans to launch listed investment trust will invest in 15-35 global companies, which could emerge as much as a $9 billion fund.

Magellan is increasing its marketing in the coming year, from $3m to $11m. A new deal to sponsor Cricket Australia over the next three years is a key component of the plan, since Test cricket has “very attractive demographics of older people with money”.

“We were pretty happy with the results for the year. The underlying health of the business is strong,” Mr Douglass said.