FYI | Jun 15 2010
By Rudi Filapek-Vandyck, Editor FNArena
FNArena received a question from a subscriber about how to explain the high correlation between share prices of Australian banks and the Australian dollar. We thought it might be a good idea to share my response with all other subscribers.
Here's my answer: in 2009 the most profitable position for global investors (probably in the world) was to own shares in Australian banks.
They would benefit three-way:
1. share prices went up, and they went up a lot
2. Australian banks remained among the highest dividend payers in the world
3. the Australian dollar was one of the best performing currencies
As a global investor, it was difficult (if not plainly impossible) to look past Australian banks. They were simply the champion performers for anyone outside Australia.
This year, however, that relationship has reversed. Note how share prices have struggled, with the Australian share market underperforming US markets, and many others. Plus the Aussie dollar has rapidly retreated as well.
Result: foreign investors are better off selling their shares and putting the money into local favourites. And that's exactly what has happened over the past months.
