23 January 2012
The big bubble?
Australia has bucked the global trend over the last few years. They think they have had suffered the effects of the 'GFC' (Global Financial Crisis) but compared to most of the world they hardly suffered at all. Growth has continued albeit at a slightly slower rate and the benefits from its proximity to China and the boom in commodities have insulated Australia. There are stories that lawyers were giving up their legal careers to drive trucks in the mines as the pay was better!
I usually have a Coke and a Twix for breakfast (not exactly the breakfast of champions!) and I use this to indicate how expensive a country is. My C&T index is twice as much in Sydney as it is in London. It is probably even higher in Perth which has had the biggest benefits from the mining boom. My C&T index tells me that it is too expensive to live in Sydney so wages must be over-inflated and unsustainable with the current economic situation.
It also looks like there is a lot of immigration into Australia when a declining economy is not creating the new jobs to match and when jobs start declining there will be an issue with having to pay benefits to this unnecessary additional labour supply. They can look at the UK to see a good example of this. One in three students in Australian universities has Chinese as their mother tongue seems an amazing statistic.
Australian asset managers did reasonably well during the GFC as they were able to raise money from the local market which is driven by their well run pension schemes. This is started to dry up and the good managers are beginning to look for capital globally. Apex seems to be one of the few global administrators local in Australia and able to help them with the structures to help with their quest. They may find that only the best will have success such is the limited supply of liquidity around the world.
Australian allocators may also be looking for global strategies as they feel that the Australian market is over-heated and they are heavily weighted with local exposure in a similar way that Brazil is. This may create opportunities for managers outside Australia to raise capital as Australian allocators look for greater diversification.
Mortgage rates are about 7%. To fund these the salary/mortgage multiple must be getting too high which can only mean one thing - a property bubble. Many prefer to rent than take the risk at the moment and the rental return for landlords is only 2-3%.
Australia is now so heavily dependent on the mining sector and commodity prices. It looks like a sustained fall in these prices will have a painful effect on the whole of the Australian market and the issues felt in Europe and the US could soon be a reality. I hope the asset managers and allocators are able to diversify their strategies in time.