By Carl Delfeld of Chartwell ETF and ETF Pick of the Week
The Australian consumer does not look that robust. The Financial Times reports that household debt-to-income ratios, at 177%, are higher than in the US, according to Morgan Stanley. And homes are every bit as over-valued as elsewhere, if not more so: the average house price/income ratio is 5.5 times.
The top holding of the Australian ETF (EWA) BHP Billiton reported its sixth consecutive year of profits growth after the Anglo-Australian mining group due to sizable profits from its petroleum, iron ore, manganese, and copper operations. But increasingly, the market is becoming skeptical that the giant merger between BHP and Rio Tinto will not take place.
But Australia’s inflation rate recorded its biggest quarterly increase in 17 years as consumers were somewhat squeezed by increasing mortgage rates and record fuel prices. Its economy, though showing some signs of slowing, continues to enjoy consistent growth and is in its 17th year of continuous growth.
On the cautionary side, mortgage credit will expand by less than 10% for the first time in 40 years in 2008 according to Citigroup. The Australian stock market is down by 26% since its peak in November. Banks have been hit harder still and the top four banks account for 20% of the total Australian market value. The Australian currency is also trading at a four month low as many expect lower interest rates.
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