Barron's Asian Trader column this week focused on the possibility that valuations in the Australian market, but not the big miners, are too high and ripe for a correction of some sort.Australia has been very hot, there has been a lot of M&A activity, the Aussie dollar has been strong, there has been no recession in 16 years and the benchmark ASX 200 index has been making new highs for months.
Over the years that I have followed this market there have been a few dips but no panics that I can recall. There certainly could be some sort correction coming but the analysis in the article did not seem to spell it out very well.
If there is a correction the reason may not matter a whole lot. The more visible catalyst to me would be a spectacular decline in China. Australia dropping in sympathy with China would probably not be fundamentally justified but would probably happen anyway.
The reason I say not fundamentally justified is the that no matter where the Chinese market is, the country of China is still going to need a lot of the stuff Australia sells.
I write often about Australia as an important investment destination. It is a commodity based economy which offers developed market diversification to the US' service based economy. Further, stocks there tend to be a little cheaper and have much higher yields.
As much as I like Australia and put it in every account, clients only own one stock (or ETF depending on the circumstance of the client) that started as a 3% weight and has grown a little larger depending on how long they've been a client. A few clients also have very small positions in the Australian Dollar CurrencyShares (FXA) too.
Yes another post about moderation. At some point Australia's stock market will have some sort of problem for some reason. Having a small position means being right about why or when is far less crucial than if I had 20% in Australia. This applies to any theme you think is important.
Exposure to other foreign countries having little to do with Australia or the US also creates diversification, here Ireland comes to mind as an example.
I did not take the picture posted above. I did fight a fire one time where a lighting strike cause the roots of a tree to burn under ground (a common thing). The ground was smoking like crazy in a downpour and we had no real way to put it out.
14 comments:
"Australia dropping in sympathy with China would probably not be fundamentally justified but would probably happen anyway."
A lot of movements are not fundamentally justified, but there is so much correlation between markets it is just a matter of fact. This is why true diversification is a really difficult thing to do.
I fly helicopters for a living and have dumped untold gallons of water on trees like the one in your picuter without making the slightest difference to the fire.
Roger,
In case you missed it, Nuveen announced the first quarterly dividend for JGT. Comes out to 9.02% annualized based on the initial offering price of $20 (about where it is now).
Our one serious fire last year, which I wrote about here, would not have been put out without air support, slurry and water.
We would not have contained it otherwise.
Re Anonymous, I just learned about JGT this morning in the release covering my other Nuveen funds, JDD and JRS. I drew a blank on Seeking Alpha and even the Nuveen site and ETFConnect are short on basic information. It looks like a good diversifier with high yield, would be great to read more about it.
internet2k4,
If you didn't see it already, on the JGT page at the Nuveen site, there is a link to an "investor guide" (upper right corner of the page). Other than that, yes, there doesn't seem to be much info available yet.
Thanks Anonymous - I had downloaded the PDF brochure and in fact it's what whet my appetite - but I still can't tell what the instrument that's trading now actually holds or what the fees are (?)
i spoke to someone in marketing at Nuveen when JGT first listed and was promised a call back, which I never received. I am hard pressed to know how the fund can pay anything but an ROC at this point but I have not read about the payout.
Given that Australia is commodity centric (much like Canada), I would imagine it's fate tied to that of global economy. Any whiff of China slowing down would probably cause some action in EWA and EWC.
While there is much noise about the Shanghai index, when I look at some of the individual components of the Halter Index, I do not find valuations any more aberrational than what one sees in our own market in looking at a cross section of stocks.
FYI - from the Nuveen release: "Nuveen also announced an initial quarterly distribution declaration for the Nuveen Multi-Currency Short-Term Government Income Fund (ticker symbol: JGT) of $.4510 per share, or a 9.02% annualized distribution rate on its $20 IPO market price. The closed-end fund began trading on the New York Stock Exchange on April 26, 2007." (Earlier deleted comment was a URL link to the release that didn't copy correctly.)
Non-Australian's tend to overemphasize the role of commodities in the Australian economy. It is service domincated like the US heavier in commodities and lighter in high tech etc. I'm 65% or so in Aus :)
Non-Australian's tend to overemphasize the role of commodities in the Australian economy.
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IN general, I've noted that both EWA and EWC tend to go the way of the commodities (gold/oil). My particular comment was slated toward those ETF's. Your comment above (and thank you for making it) motivated me to look at the composition. The EWA composite surprised me: 47% Financials and 22% Materials. BHP is the most heavily weighted holding at 10.8% weighting.
EWC is 32.4% Financial and 45% Energy and materials.
From Nuveen after an email inquiry about JGT yesterday: "Thank you for your interest in Nuveen products. Since the Initial Public Offering (IPO) pricing date for JGT was April 26, 2007, the fund is still in the investment period of which may take approximately a month or longer. The fund’s portfolio holdings and assets raised will help determine the amount of time required to make specific fund data available. As much of the data is commonly released on a quarterly basis, some of the fund attributes may not be available until July."
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