The 'offshore earner' is looking crowded

Despite our view that a lower Australian dollar will assist in turning around business confidence, the market may already be factoring this in. Investors seems totally enamoured with the ‘offshore earner’ trade and are pricing it richly. We are always concerned when a theme gets its own special name (much like the ‘yield trade’), and it seems to us that the ‘offshore earner’ theme is very crowded and could be subject to a reversal if the Australian dollar does not decline as rapidly as the market appears to be factoring in. Furthermore, investors need to ensure they are discerning as to the type of offshore earning company they invest in. The positive exposure of a falling Australian dollar could well be offset by poor stock specific fundamentals. This risk is further exacerbated if the investor has already paid a hefty multiple for the company. Overall, we suspect if investors want exposure to a falling Australian dollar, they should invest directly offshore, rather than crowding in to what seem very expensive ASX listed ‘offshore earners’