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Last week, Hedgeye Financials Sector Head Josh Steiner held an institutional call discussing Australia’s housing bubble, and why now is the time to short Australian Banks.
The country’s big four banks: CommBank (CBA), National Bank (NAB), Westpac (WBC) and Australia & New Zealand Banking Group (ANZ) are holding the bag on this developing mess. With over 60% of their loan books in residential mortgages, there’s basically nowhere to hide.
Here are some noteworthy highlights from Steiner’s call:
Contrary to popular belief, the primary driver accounting for approximately 30% of the Australian GDP is building, selling, and financing property, not mining which only accounts for around 8% of GDP. 60-70% of the market being bought with interest-only mortgages; this model only works when property prices continue to go up, as Americans may painfully remember.
An important tenet of Steiner’s demand slowing call rests on the assumption that Chinese demand for foreign property investment will slow in 2016 vs 2015, and then slow further in 2017. Part of this has to do with the coming credit storm and pace of FX reserve drawdown.
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For more information on how you can access our institutional research email sales@hedgeye.com.