Star analyst shuns Aussie stocks

Internationally renowned equity analyst Christopher Wood isn’t buying into the hype about Australia – he’s keeping his money away from the “lucky country.”

Friday, November 25th 2011, 7:10AM 1 Comment

The CLSA Asia-Pacific Markets analyst, who publishes a weekly newsletter called "Greed and Fear," detailed his views about a wide range of market and economic issues at this week's CFA Society annual dinner in Auckland.

His negative view on Australia contrasts with many New Zealand analysts and fund managers, who have been increasing their exposure to the Aussie share market in recent years.

However, Wood is keen on the "growth story in Asia" where countries like China, India and even Indonesia are growing rapidly despite the sometimes volatile nature of their share markets.

"I am funding my longstanding overweight in Asia by a corresponding zero weight in Australia," he said, although "It would have worked out better if the Australian government hadn't guaranteed the banks' bond issues in 2009."

Wood said a big concern was the leveraged nature of the Australian banking system, which is heavily reliant on overseas funding, which could leave them dangerously exposed if international money markets freeze like they did during the financial crisis.

"US money market funds have been reducing their exposure to European banks. The only reason this hasn't produced a massive liquidity panic and another Lehman Brothers is that Mr Bernanke never removed the funding line."

In contrast to the heavy borrowing by Australian banks, Wood said Indonesian banks have margins of 600 to 700 basis points with none of the risky overseas borrowing.

"When it comes to investing in banks the simpler the better," he said.

Wood is also bullish on gold, with 30% of funds in physical gold bullion and 15% in un-hedged gold mining stocks.

He said gold would surpass US$3500/oz, a figure he worked out by adjusting purchasing power parity to where gold peaked during the last bull run.

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Comments from our readers

On 25 November 2011 at 10:10 am Barry Milner said:

30% in gold bullion, 15% in un-hedged gold mining stocks, China, India and Indonesia safer bets than Australia. If this is the best a "superstar analyst" can do I think I'd rather put my money on the TAB. No wonder the funds management industry in this part of the world has such an abysmal record.