It’s no secret that Australia is one of our favorite economies. With sober monetary policy as well as commodity resources and a strategic geographical location in the Asian supply chain that provide competitive advantages in meeting Chinese demand, the land down under has managed to sidestep recession. Although, at 5.8% SA, unemployment remains historically high and the construction and financial sectors continue to face challenges; in comparison with the rest of Developed Asia (or the Developed economies globally for that matter) Australia appears to be enviably positioned –a fact reflected in consumer confidence measures that have rebounded to levels not seen since 2007 in recent months.
This relative strength has been reflected in the markets. After a Q2 reporting season that was without major surprises the ASX All Ordinaries has continued to outperform US equities with YTD performance of almost 29% VS. 18% while, in the wake of Governor Stevens tightening signals, the Australian Dollar has continued to outpace the greenback with the Aussie now up 25% YTD (making the USD investment performance for the ASX over +60%).
On an absolute AUD basis, the trend in exports continues to improve across the commodity spectrum as Chinese demand has remained resilient in the months since the Beijing stimulus program was initiated (see first chart below). This picture is clouded by the relative late ABS reporting schedule and the impact of currency strength on a relative basis versus the competition (see second chart), but all unofficial data sources and channel checks continue to support the trend. Regardless of the positive impact of demand from “The Client”, the year-over-year compare will continue to be brutal until October –last year’s high water mark for shipments (see third chart).
We will continue to follow Australia closely and will look for opportunities to resume long exposure to either equities or the currency as dictated by price action.
Andrew Barber
Director or