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Investments in Euro denominated Assets: Best Equity Risk in 2012?

December 15, 2011

Investments in Euro denominated Assets

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From → Credit Analysis

3 Comments
  1. Joe Rand permalink

    An interesting article but i don’t understand your following passage.. “And countries like China and Australia which link their fortunes to fiscally irresponsible countries through trade ties are setting themselves up bastardization of their own currencies through write-offs of bad loans and the fall in value of their foreign exchange reserves”.

    That sounds totally appropriate for China as it does rely on trade ties with fiscally irresponsible countries (Europe, USA) and does have large foreign exchange reserves..

    Why would you include Australia in the same sentence? Australia mainly relies on China (well.. also japan) for their trade ties (no major trade ties with the PIGGS etc) and as far as i know Australia has little in the way of foreign exchange reserves.

    (http://en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves)

  2. Hello Joe, I think there is a lot of merit in what you say. And perhaps a severe slowdown in China might be to Australia’s advantage- it might divert resources from the overinvested mining sector and Australia’s other strengths will come to the fore. But are Australian banks (say Macquarie) excessively exposed to the mining and allied infrastructure sectors? Even if that happens, I guess Australia, unlike many countries, does have the resources to bail out its banks…

    • Joe Rand permalink

      Indeed, one might expect the likes of Macquarie Bank to be excessively exposed to downside risk, maybe in far more than just the mining sector. Much the same beast as the irresponsible Euro/US investment banks.

      Fortunately, I don’t suspect many of the other big Australian retail banks would have much exposure. They look to be in good shape, although they are somewhat exposed to a global liquidity crisis as they rely on raising funds in foreign wholesale markets.

      A slowdown in China would clearly hit Australia’s balance of trade, but as you say.. it would likley create an opportunity for Australia to realign it’s two speed economy.

      I think the biggest risk for Australia at the moment is the incompedance of the current government. That being said.. I doubt they’ll last much longer anyway, they’re very unlikely to last full term.

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