VALUE: The world’s 8th largest equity market (AUS200), was one of few in the green this year, along with many fellow commodity-heavy and forgotten Value markets like UK, Canada, Brazil. Australia’s ‘lucky’ safer-haven status was helped by a strong dose of financial stocks, at 1/3 the market each, and little exposure to the worst-performing tech sector. The big financials weight makes the market surprisingly ‘domestic’ with only c40% sales from overseas, and their profits could benefit from the start of the interest rate upcycle. Whilst its booming commodity exports (see chart) are exposed to the slowdown, and the policy responses, in its top trade partner China.
ALL CHANGE: Australia has just seen its first interest rate rise in over a decade as the central bank (RBA) starts to combat inflation that has soared to 5.1%. This comes only weeks before the May 21st Federal election that likely see’s the opposition Labor party winning power from the Liberal-National coalition that has a one-seat majority. But the policy differences are limited, with both focused on the consumer cost-of-living squeeze and low property market affordability.
ASSETS: Higher commodity prices and the RBA hike have helped hold the AUD to only a 2% loss versus the surging US dollar this year, better than most G-10 peers. Its largest commodity exports, from iron ore to gas and coal, are helping drive a 20% ASX profits rebound this year, twice the global average growth. Whilst the stock market trades at 15x price/earnings valuation, close to the global average. The largest stock BHP (BHP) is on 8x, with an 9% dividend yield.
All data, figures & charts are valid as of 09/05/2022