Strength in offshore earners likely to persist

The strongest performing sector of the market has been offshore earners and primarily those with US operations. This is partly in response to the weaker $A as the commodity boom has tailed off, but also represents stronger growth from the US economy. We see this trend persisting as further weakness in China continues to undermine commodity prices and the $A. The current expansion in the US tends to ebb and flow, but is unlikely to end while interest rates sit at zero. In this environment companies with operations in the US are likely to continue to benefit from a stronger cyclical growth outlook as well as the translation impacts of a stronger $US. As the US recovery continues and with the economy approaching full employment we are likely to see the Federal Reserve raise interest rates, probably by the end of the year. This will likely give another leg up to the $US and offshore earners in our market.