Hi, There has been much debate about MAD and its reserves, BOPD trend etc, however I am of the view that we are missing a massive change that in my view is significantly derisking MAD and its happening in front of our noses.
Consider, the AUD/USD has dropped about 10% in the last 3 months, this alone in theory should have caused the price of MAD to increase by a similar % as its current and future revenues are denominated in USD. However that is only the tip of the iceberg.
We all know the RBA put rates on hold for the time being. However if you think rates are going to drop further, then this removes part of the government bond yield which attracted a lot of offshore money into the AU market and bonds. Combine this with a strengthening US economy and slowing Chinese economy and it makes the AUD a much less attractive investment, which of course includes holding AU securities.
In my view this is a massive downward pressure on the AUD, which from a profitability perspective will create a significant upward pressure on the price of stocks with exposures to the USD. This is very simply because each USD will buy more AUD.
So firstly consider the implications for the above on MAD, and then maybe you should take a holistic view of the implications of the above pressures on your portfolio currency exposures as a whole.
Cheers
AP
FDM Price at posting:
30.5¢ Sentiment: Buy Disclosure: Held
