Hot money abandons Australia


Will Governments ever learn?

Do you think that Governments in Australia will ever realise the impact their decisions can have in a country to relies on foreign capital to the extent that Australia does?

In the face of wildly flutuating commodity prices – driven by massive, temporay global stimulus efforts and a surfeit of hot and fast speculative money – our Government decides that this rare set of circumstances entitles them to put in place a long term tax imposition. The short-termism of such action is spellbinding. The intentions may have been nobly egalitarian but the steps taken really were kindergarten style decision making. Forgive me for expressing such a blunt opinion but when are decision-makers going to realise that policy needs to account for extremely varying circumstance – and that simply is NOT happening.

OK. Enough of opinion. Here are some quick facts for your morning.

We will simply look at a series of pictures of how the rest of the world values Australia as an investment destination (through looking at our currency movements against major trading partners, and at our sharemarkets).

Australia dollar against key currencies:

Impact on our Japanese Yen trading value

Impact on $US - and therefore Chinese currency value

 And the target of the world’s speculation for a downfall – the Euro – against our currency?

The Aussie is abandoned in favour of even the Euro...

Australian sharemarket.

Australia's top 200 companies price level

The positive from this is that we should see some particularly good prices, as the twin hit of falling sharemarkets and currency bring prices to levels that are very supportive historically.

The medium term impact of all of this will be felt in interest rates and house prices… but we can cover that another day. For the moment, the key point here is that Government policy has rarely been exercised with such blatant disregard (or misunderstanding) of market impacts.  It must always be remembered that the idea of taking a “supertax” profit from a capital intensive, regularly repriced commodity industry only works if you assume that the “super profits” will be a regular expectation. To consider this, let’s return to the long term prices for our key commodities under consideration – iron ore and copper (there are others but this is supposed to be a short look…).

Long term price of iron ore

So much for the commentary… Now i must return to working through outcomes and recommendations for individual portfolios.

Remember the Big Disclaimer – This is not to be considered personal advice as it does not take into account your personal financial position, expectations or preferences.


Leave a Reply