High-profile stockbroker Charlie Aitken has weighed into the debate around the Australian dollar, saying that a wave of hedge funds could be set to short the currency and the biggest winners would be industrial stocks, not resources.
As the dollar came under further pressure today, Mr Aitken told clients in his daily morning note the dollar would be the “big macro event of the year”, making it crucial to get right when writing Australian investment strategy.
“I believe you will see the hedge fund world gang up on the Australian dollar from the short side now that the short trade is gaining momentum,” the Bell Potter managing director of wholesale said.
“I think they will also broaden the trade out to shorting Australian mining and mining services stocks in Australian dollars to amplify the trade.”
Mr Aitken, known in the market for his at-times bullish notes that are signed off 'Go Australia', noted the Reserve Bank of Australia’s attempts to lower the currency in the past two years with 200 basis points of rate cuts. But he said they had been ineffective, as shown by the currency’s dive last week amid reports George Soros was shorting the dollar.
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Traders short securities to profit from a view they will fall, with famed investor Mr Soros having a “Keyser Soze effect” on currencies, said Mr Aitken, using the character in The Usual Suspects as shorthand for a myth or belief that is so compelling it becomes self-fulfilling.
“This is so like the start of the big iron ore equities short last year. The fact it starts working brings in new players,” he said.
Mr Aitken added that resources stocks would get knocked around, rather than benefit from a falling dollar, due to the growing offshore investor view that the commodity super cycle was over, more commodity supply was coming on market and the greenback was back.
UBS analysts said today that a weaker dollar would drive upgrades to consensus earnings for the miners, but cautioned that stockmarket investors may respond instead to the reasons why the currency was falling, such as lower commodity prices.
“It seems…the consensus domestic view is that a falling Australian dollar should see yield stocks underperform and resource stocks outperform,” said Mr Aitken.
“I take the complete opposite view on that, feeling you have to pick a side in the resources vs industrials of which I am picking industrials. I believe the performance differential will continue to widen in favour of industrials.
“I have this growing feeling we are entering an ‘industrial equity decade’.”
Mr Aitken said the medium-term technical support level for the dollar of 97 US cents may get tested in the not-too-distant future.
“Below there its fresh air on the charts,” he said.
