Macro picture offers hope despite troubles

While the short-term macro-economic picture looks increasingly bleak, many still believe in the Western Australian story, driven by an insatiable demand for raw materials from China and other developing nations.

Prices have fallen for a number of key minerals in recent weeks, along with oil, which has come off its extraordinary highs amid concern that US weakness led by the banking sector will translate across the globe, even taking some of the steam out of China once the euphoria of the Olympics is over.

Of course, recent high commodity prices have not brought joy to all WA producers.

Many marginal producers have found the gains from rising prices have been netted off by the strong Australian dollar, which has traded close to parity with the US dollar at a time of increasing cost pressures.

George Lucas, managing director of fledgling Sydney-based asset manager Instreet, is not being put off by the dire times. Instreet is launching a commodities fund in the belief that global demand will continue to rise and that WA is well placed to service that.

Even gold, which is one of the commodities to have softened recently, will be a winner.

"All that uncertainty will drive people towards gold," Mr Lucas said.

In the asset sales sector, Mergers & Acquisitions managing director Ross Goldstein said the credit crunch had already brought valuations back from the very high levels of late calendar 2007.

He said buyers had not exited the market, they were just more demanding in terms of results and expectations.

"The days of waiting to see if someone comes up with a 'price you can't refuse' are now behind us for possibly a good many years to come," Mr Goldstein said.

Looking ahead in property development, Covenant Finance CEO Don Tapper sees a shortfall in residential land supply in 18 months to two years as small and medium developers, which make up a major part of the market, suffer from higher interest rates and tightening bank lending regimes.

With Covenant among a number of alternative lending groups to believe the uncertainty is a boost to their business, Mr Tapper said developers relying on the traditional banking sector would require significantly more capital to get projects under way.

"Banks are reducing their commercial lending ratios," he said.