Sunset Strip | Aussie Afternoon Institutional Market Wrap

Aussie market started negative and gave up more as expected due to investors reducing risk into the weekend. The market is beginning to accept the China devaluation more than understand the justification. We do expect this to continue and devaluation to reach over 10% in the next few months as US Fed moves up the interest rates. Logic suggests that they are not trying to push everyone into deflation, but rather support domestic manufacturing remain competitive. This will remain negative for commodity countries and their currency. Regular readers would know that we have been saying this move was inevitable for the past few weeks and we remain of the view that there is more to come. We maintain our positive long term view on the yield trade (i.e. banks, div financials and telcos) while health care looks the best growth/currency story. We continue to like the gold sector on margin/safety aspects with recovering spot gold and falling currency. (VIEW LINK)