In essence, the primary risks to the Australian market are either made in China or born in the USA

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Livewire Markets

In essence, the primary risks to the Australian market are either made in China or born in the USA. On this occasion, we see the USA as being front and centre. To begin with, the NASDAQ has risen approximately 340% from its low of 1108 in October 2002, and the S&P500 has risen 170% from its low of the same month. This in itself is 'manageable' in a historical context, except that the primary drivers of these rallies (being QE 1-3) have run their course. Next, the $US is at a 12 year high to its cross-currency basket, which effectively leads to exporting jobs off-shore. Thirdly, US interest rates are on the cusp of turning up. While initial rises will not materially impact business activity, they will impact the comparative attractiveness of equities where the yield has already been compressed to distasteful levels. Finally, let's not forget the US debt ceiling! We are, therefore, overweight cash but happy to increase our equity exposure on any correction.


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