Rudi's View | Jul 31 2025
Update on expert views and predictions ahead of the August results season in Australia.
-FNArena Talks
-The Importance Of The USD
-Australia's Golden Goose
-August: It's About More Than Earnings
By Rudi Filapek-Vandyck, Editor
FNArena Talks
A replay of this week's online Q&A is available: https://youtu.be/d30WGsiGWs0
Or simply visit the dedicated section on the website:
https://fnarena.com/index.php/analysis-data/fnarena-talks/
The Importance Of The USD
An underlying trend of US dollar weakening might make American businesses more competitive vis a vis foreign competitors, but for foreign investors a dilemma is being created.
FNArena has written about this already, but ClearBridge Investments highlighted the issue yet again this week and it's worth repeating the gap that is forming between domestic and foreign investors in US assets.
"Investors looking at their June statements must feel good unless they live outside the United States.
"While US investors saw a 6.2% return year to date, the S&P 500 Index is down in most foreign currencies due to the significant decline in the US dollar.
"S&P500 investors in Japan lost -1.2% in yen; in euros that would be a -5.3% loss; while the S&P500 declined -16.4% relative to gold. Indeed, the dollar is the only commonly used yardstick that flatters US returns.
"A quick survey of global equity performance drives home the point. Not only did US equities become worth less in the first six months of 2025, they also significantly underperformed global markets with the S&P500 up 5.5% versus the MSCI ACWI ex US Index’s 17.9%.
"Yet despite considerable underperformance, US stocks, with a trailing price-to-earnings (P/E) of 23.8x, continue to trade at a record premium to foreign markets, at 15.3x.
"For US focused investors, it is easy to lose sight of global dynamics. But for foreign investors, these issues are front and center every day. Rising US equity markets may make American investors feel good, but they will not do any good if those investors are unable to maintain and grow their purchasing power.
"Continued US underperformance also risks becoming self-reinforcing. With US markets at all-time highs, foreign markets relatively cheaper than they have ever been and global investors over-indexed to US markets, it is easy to envision cascading outflows."
Australia's Golden Goose
A recent UBS report on Australia's mandated superannuation system, considered the country's golden goose, contained the following comment:
"The size and growth in Super funds potentially creates systemic risks in Australia.
"The top funds hold a disproportionate amount of the total system's funds, and this skew is likely to further over coming years given these largest funds are still capturing the strongest inflows.
"What does strike us as uncomfortable, is the layered exposure Australian householders now have to the domestic residential property market. More than half of Australians' wealth already sits in residential property.
"If we also include the Superannuation fund holdings of Australian Banks, then we estimate the proportion of Australians' wealth directly (or very closely) linked to the Australian housing market is 55%."
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