Australia Expected to Continue To Shine

Australia was the only major economy to avoid a technical recession in 2009 and was the first G-20 nation to tighten interest rates since the beginning of the financial crisis, which are two reasons the nation down under is expected to shine in the coming year.

A massive government stimulus plan, which included billions of dollars in cash handouts to low and middle income earners boosted private consumption and business investment, which has further bolstered increases in consumer confidence, housing construction and public infrastructure spending.  These three efforts are expected to keep Australia’s economy in growth mode.

In fact, the nation’s economy is expected to increase at a rate of 3.75% in 2010, which will enable it to improve its unemployment numbers, which are the lowest amongst industrialized countries, and further boost consumption adding to the overall health of its economy.

Another reason Australia has appeal is the health of its banking sector.  Australian banks emerged from the global financial crisis without taking much of a blow leaving them relatively solvent and immune from high rates of bad debt in the near future.  Additionally, according to a research report at Wharton Business School, the Australian government has further strengthened its financial sector by guaranteeing deposits and wholesale funding of its financial institutions.

Lastly, Australia has reaped the benefits, and will likely continue to, from being commodity-rich and having a good relationship with Asian trading partners.  China is expected to grow exponentially in the coming year and will likely turn to Australia for resources as will South Korea and other Asian nations.

Although some are cautious of the sustainability of Australia’s economy, history is on its side as that it has yet to see a recession in 19 years.

Some ETFs likely to benefit from Australia’s strength are the following:

  • The iShares MSCI Australia Index Fund (EWA), which closed at $24.29 on Monday
  • The iShares MSCI Pacific-ex-Japan Index (EPP), which allocates 68% of its assets to Australia and closed at $43.66 on Monday.
  • The CurrencyShares Australian Dollar Trust (FXA)which closed at $93.25 on Monday.

When investing in these equities, it is important to consider the inherent risks that are involved.   A good to way to protect against these factors is through the use and implementation if an exit strategy which triggers price points at which an upward trend in gold could potentially be coming to an end. 

According to the latest data at www.SmartStops.net, the price points for the aforementioned ETFs are: EWA at $23.08; EPP at $41.82; FXA at $90.46.  These price points fluctuate on a daily basis and reflect changes in market conditions.  Updated data can be found at www.SmartStops.net.

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