Continuing on from my post last month
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about demand coming from overseas investors... CBA looks to be the tip of the spear. More Australian assets and stocks are set to benefit from the increased overseas demand moving forward. It comes as no surprise that ever since April, money has been flowing out of US, looking for alternatives.
Government bonds in other recognised havens have found favour, such as Japan and Switzerland. Now there is a large possibility Australia may be on the radar. Compared to most countries our government debt is low compared to that of Japan, UK and much of Europe, which makes Australia a safer bet. In fact we are only one of 10 countries with a AAA credit rating...
More foreigners are shifting to non-US government debt and a consequence of that is the Australian dollar is gaining ground (since the start of the year in fact) and perhaps losing some of the volatility with which it has been associated. Those not familiar with FX. The AUD is volatile because it is a favourite of currency traders. Given our status as a commodity exporter, global financial traders love to bet on the Aussie dollar. If iron ore, coal, oil or wheat prices shift, so does the AUD. On top of that the AUD is a proxy for China's economic performance...
Another signal to my premise above is how the global market reacted to the more recent Gaza conflict. Previous global money markets should have reacted with money flowing out of global stock markets and into the ultimate safe haven, US government bonds. Demand for US bonds sends bond prices sharply higher, yields lower and dramatic lift in the greenback. After all you need US dollars before you can buy US government bonds. So entrenched is this strategy that it has even been the go-to shelter when America has caused the market meltdown in the first place, such as during the global financial crisis.
Instead, here's what went down on Friday.Predictably, oil prices soared on the prospect of supply disruptions. But the US bond market barely blinked. The US dollar, which has shed almost 10 per cent this year, rose by just a smidgen.If ever there was an illustration that America's reputation as the global reserve currency and the leader of free market capitalism has been tarnished, this is it and other safe haven asset to get a tailwind moving forward.
Safe haven... Gold, Cashflow Heavy Goldminers and CBA (read my Bank Contagion post on why CBA should be considered a safe haven asset
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79116351
, and
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for the banking lay of the land).
(20min delay)