Australia ETFs' Troubles at Odds with Country's Economic Optimism

Australian finance officials put up a brave face in light of economic woes and hard-hit ETFs.

Despite concerns of a possible recession, reserve bank governor Glenn Stevens has claimed Australia is better off than most countries in defending itself against the global crisis, reports Peter Martin for Stock & Land.

Recent international economic and financial events have made Stevens believe Australia may experience a more significant slowing than previously planned for. He believes that an entire financial system collapse with worldwide repercussions would be unlikely.

Their fear is that pessimistic descent among its citizenry would decrease consumer spending in an attempt to conserve wealth which could create an environment of unnecessary economic weakness.

Australia has already provided a fiscal stimulus program of $10.4 billion. They are following policies that will provide for a better long-term outlook and not just a simple short-term boost for its aggregate demand.

The country seems optimistic about its economy, but the numbers don’t reveal much cause for it.

iShares MSCI Australia (EWA) has been among the hardest-hit among single-country and regional ETFs. It’s 64.4% off its Oct. 31, 2007, high. Most other global economies are in the 50% to 60% range off their highs (Russia and China have been hit harder, notably). Even in the last two weeks, it has been one of the worst performers, down 20.5%. Few others have fared worse.

Is Australia in denial and are they dealing with the crisis realistically?

Australia’s ETFs that have experienced the downward spiral include:

• iShares MSCI Australia Index (EWA): down 53.2% year-to-date

Comments

[Rokjok777:]

I moved to Australia from the US in 2005 and have a few comments. Firstly, they have a government chartered banking business with much better regulatory oversight structure and transparency. Their central bank is widely viewed as one of the best in the world. The government has no external debt, having paid it off several years ago. They moved swiftly to unlock part of their surplus to spend on infrastructure because of any slowdown in the rest of the world. Their major trading partner is no longer the US but instead now is China. They sit on a mountain of iron ore and another mountain of coal. The government requires businesses to pay 11% of a worker's income into a fund that the worker controls and can invest however they like (unlike SocSec, which has shown a crappy return). In all, I am so glad I came here with my family, in another two years I can apply for citizenship so I no longer have to send my tax dollar to Uncle Sam so he can give it to bankers by the wheelbarrow-full...or blow it up in the sands of Iraq.

2008 Nov 25 03:45 PM

[Rokjok777:]

Another comment. The stock market and the currency have been hit hard for a few reasons. First on the currency, when interest rates started falling here, Japanese investors started selling uradaishi (Aussie-denominated short-term fixed income). That trade is now almost completely unwound. And on stocks, global risk appetite declined so non-Aussie investors sold their shares, which also repatriated home country currency, forcing the AUD down. Those two factors are almost completed now.
May I suggest coming for a visit and judging for yourself. This is one of the most beautiful countries on Earth and the people love Americans.

2008 Nov 25 03:55 PM

[Urbane Gori...:]

Rockjok777: They also have Fosters Beer, Shrimp on the Barbie and Crocodile Dundee. What does that have to do with the chart?

As an owner of Twiggy's Fortesque Mining and BHP, I'm not too impressed with the strength of the Chinese market. Until someone starts buying products, China isn't going to ramp up production. They won;t be needing Aussie iron right now. Isn;t that why BHP decided to cancel their takeover of RTP?

Glad you're having fun 'Down Unda'" though.

jegan ;-)

2008 Nov 25 06:57 PM