BLACKROCK: 4 Reasons Why We're Worried About Australia Right Now

melbourne australia

Photo: Linh_rOm / Flickr

Australia’s economy has been largely driven by its enormous mining industry, which has been supplying big emerging markets like China.However, as the emerging markets slowed, Australia got slammed.

In a new post on,  BlackRock’s Russ Koesterich lists four current concerns he has about the country (verbatim):

  1. Australia is not as cheap as it was six months ago. Australian equities are trading for nearly 2x book value. While this represents a discount to US stocks, Australia is now trading at a premium to most developed markets.
  2. Growth remains soft. Australia has been hurt by falling commodity prices, particularly for iron ore. This drop in prices has had a negative impact on Australia’s terms of trade and has undermined the country’s business investment and household income. As such, in its recent statement, the [Reserve] Bank of Australia (RBA) downgraded its 2013 growth outlook to 2.5% from 2.75%.
  3. Australia has become a two-speed economy. Australian monetary policy has become complicated by the fact that the country’s mining sector is growing at a very different rate than the rest of the economy. After an aggressive round of rate cuts, the RBA is now taking a pause to determine if its recent policy easing will be sufficient to ensure a pickup in the non-mining sector.
  4. Australia has an over indebted consumer. One factor holding back the non-mining portion of the economy: too much consumer debt. Much like US consumers, Australian consumers are in the process of repairing their balance sheets. As this process unfolds, consumption will remain soft.

Koesterich has been bullish on the Australian stock market since the beginning of 2012.  However, he notes that he could soon downgrade that position.


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