Global Hedge Funds are Bananas

The Australian economy is back, baby.

Global Hedge funds are out of their mind.

Take a look at this chart here. This suggests that global hedge funds have collectively gone underweight Australia, relative to the rest of the region.

That is, they’re buying less Aussie stocks, more of others.

That is, they’re not so hot on Australia right now.

Break it down, and it’s mostly being driven by an off-loading of the financial sector.

They’ve fallen out of love with Aussie banks.

Now, I don’t mean to be rude, but I think they’ve lost their mind.

It still seems that they’re positioning themselves for a market that 6-months old.

Today’s market is very different.

For sure, there were dark clouds looming in 2016. Big waves were gathering, winds were blowing. The government was coming down hard on the banks, the banks were coming down hard on the property market and investors.

BUT! That was all six plus months ago. The APRA restrictions have taken affect and have largely been absorbed into market functioning.

Property finance took a dive when the restrictions came in. Sales volumes tanked.

But they’ve since bounced back to normal levels – as much as there is such a thing as normal in markets these days.

Look at the chart on sales volumes. Dippity dippity, bounce bounce.

And as for the Australian economy itself? Well, the Australian economy also looked like it was under the pump. The fall-out from the unwinding mining boom still hung over our heads, and we just couldn’t take a trick from the rest of the world.

But now commodity prices have bounced back, and no one is talking about a collapse in commodity prices anymore. In fact, government coffers are filling up on the back of a boom in corporate profits as the mining sector comes back to life.

Even things in Perth are picking up.

The news is that the Australian economy is doing well.

As Luci Ellis, Assistant Governor at the RBA pointed out in a recent speech, the Australian economy turned a corner in late 2016. It was a quiet affair. Most people didn’t notice.

But the corner was definitely turned.

And with unemployment rate already relatively low, as the economy improves, wages should quickly improve with it, and that means more spending

(and a further pick up in property prices!)

And so in my mind, now is exactly no the time to be going underweight in Australian shares.

Australia is poised for a strong few years. Things are looking good.

I’m backing Australia all the way.

How do things look to you?

Spiro Kladis
Managing Director, Cashflow Capital

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