Check this out. Yesterday we touched on the idea that Aussie super funds would start pumping money into commercial property.
Right on cue, The Australian Financial Review reports that industry behemoth AustralianSuper has stumped up $360 million in debt financing for a CBD office development in Brisbane.
It just might be the biggest non-bank deal in Australian history for this sort of thing. Get used to more deals like this.
There could be a $50 billion funding gap in commercial property by 2023. That’s an opportunity for some!
But there’s an even bigger story here. There is now so much money sloshing around in super that it might rearrange more than just the property market.
It could underpin the Australian currency becoming a reserve asset around the globe.
That’s the opinion of a group out of New York called Exante Data. They’re saying that there’s a major development happening. Few people are paying attention.
What is it?
Australia is on the verge of running a current account surplus. Gough Whitlam was Prime Minister the last time this happened.
It’s been a while!
This is not some airy fairy projection off into the future. It could happen as early as September.
There are two major dynamics at work here. One is Australia’s huge exports of commodities, notably iron ore and LNG.
But it’s also the super funds investing their huge cash hoards overseas. They’re buying up foreign assets and potentially turning Australia into a ‘creditor’ nation.
There are a lot of angles to this possibility. But a big one would be to drive up the value of the Australian dollar.
Right now, international investors buy the Aussie dollar as a way to play China or natural resources.
However, this could change should Australia’s booming trade and capital flows continue.
It’s possible the Aussie dollar becomes something like the Japanese yen — a place of shelter and relative safety.
It’s worth noting that the other traditional reserve currency — the British pound — is looking pretty flimsy these days.
A no-deal Brexit leaves the UK with a trade deficit, a current account deficit and waning energy reserves. Not exactly a huge list of positives, is it?
The biggest implication from Australia becoming a net creditor would be going back to parity with — or going even higher than — the US dollar.
Europeans: Looking for yield anywhere
A word of caution. This is not going to happen tomorrow. But it’s worth a thought.
Plenty of people are ready to tell you that Aussie property and the Aussie dollar are both on the verge of big falls. The reality is never so clear-cut.
There’s a further implication to all this right now. An improving current account could attract overseas capital to Australia in search of yield.
Don’t forget that there is zero income available on most European government bonds.
The situation is so dire that the Greek government just sold seven-year bonds at 1.9%.
Can you believe that? It wasn’t that long ago that nobody would touch Greek debt with a 10-foot barge pole.
Now investors are throwing more money at the Greeks than they need!
Could this dynamic play out here, too? Australian long-term bonds currently yield over 1%. That might not seem like much. But it’s a lot more than the negative rates available in Europe.
A strengthening Aussie dollar could make these bonds more appealing because there is both upside from the potential currency appreciation and less cost if investors are willing to risk being unhedged.
Take that last comment with a grain of salt. I’m not an international bond trader.
But I’ve said all year that I don’t expect the Aussie dollar to go down much further from here.
It hasn’t moved down as much as many thought possible. I think it’s fair to say this could be part of why. Perhaps foreign money could find a way into the ASX, too.
It’s all something to keep an eye on. These kinds of shifts take a long time. But they can be profitable if you get them right.
A colleague of mine shifted a chunk of money into the US dollar when the Aussie was at over parity.
It’s become a hefty windfall for not doing anything except sitting in a bank account.
And hey…a stronger Aussie could certainly make next year’s Amazon Prime Day a bit more fun 😊.