Australian Investment Blog

The “yield play / carry trade” is unwinding hard as predicted, do we panic or buy?

I have been repeatedly been warning about the pending aggressive great unwind of the yield play and it’s now suddenly creating capital losses fast. The $A has fallen almost 5% this month and the US interest rates are rising (chart 1), to an overseas investor, it’s easy, “sell Australia”, but the scary factor is I think both of these driving factors have much further to go. The obvious conclusion is that our “yield play”, led by the banks, has further to fall and as this represents over 50% of the ASX200, so does our market. Personally, I am net short the Australian market via options and am considerably underweight the banking sector, only holding CBA. It’s time to again stand back and look at the individual bank stocks to see how far they may fall and when to consider buying them. Remember, overseas investors / traders do not benefit from franking credits and lose with a falling $A, hence they sell on mass as we are currently witnessing. This will create an excellent opportunity at some stage, when local investors start focusing on future dividend payments in November.