The China connection...

Australian financiers must be worried.... what better way to stifle concerns that you are too exposed to the pitfalls of your biggest trading partner and engine of growth (or as Niall Fergusson would put it, your new colonial master), than to have a serious heavyweight economist interview to dispel any concerns about all those annoying images of ghost cities which have been making the press recently.

Over to Professor Garnaut (whose son John Garnaut is a top China analyst) batting away some pointed questions from Tony Jones and not an upbeat conclusion:

ROSS GARNAUT: Yeah. I think we've got some big adjustments coming and that's going to be quite difficult for us. China's growth being a couple of percentage points below the average of the few decades past does take the edge of things, but more important for Australia is the big structural change occurring in China. That's all written into the 12th five-year plan from 2011 to 2015, a deliberate policy of trying to increase the consumption share of total expenditure....

In fact the interview is excellent and covers a number of key aspects - link here.

Of course this would not be a worry for Australian banks in particular if they did not have a large exposure to China and rest of Asia (or was it just China?)...

....Australia’s banks have more-than quadrupled their exposure to Asia in the past five years as they seek to cash in on the resource-rich nation’s growing trade ties with the region, the country’s central bank said.....That hasn’t substantially increased their risk profile, the central bank said, although credit risk remains an “an area to watch.”... (here).

Oh dear...

The Cyprus connection...

Australia is not Cyprus.  Professor Ross Garnaut said as much during an interview with the ABC's Tony Jones this week (more on that later).  Of course Australia is not a small country tied into an unpalatable and unfunctioning monetary union like a Mediterranean peripheral country.  So why the headline.

Well Australia is tied strongly to China and... is very dependent on offshore financing.  Since the GFC started in 2007 Ozzie banks were exposed for the relatively small deposit bases - something they have been remedying in recent years (though not without using this as an excuse to gouge depositors).  This in itself is not particularly remarkable - the Aussie dollar and bond markets have swelled with surging inflows as worldwide investors have galloped in for healthy returns and interest rates in Australia's booming economy.

But therein lies the risk - should a sudden reversal of sentiment cause a 180 degree turn and a rush of money out of the country, how exposed will #Ozeconomy be? It's hard to say but one tweet by respected economist Stephen Koukoulas raised an eyebrow.  Though justifying the current strong position there does seem to be a hint of possible future vulnerability for Australia:

All is fine for now but worth remembering that confidence is precious...

UPDATE - Bloomberg has an article indicating that foreign interest in Australian bonds is falling:

...Banks held A$76.2 billion ($79.5 billion) of securities issued by regional borrowing authorities, or 37 percent of the outstanding debt, at the end of 2012, according to data from the statistics bureau. That’s up from A$71 billion, or 35 percent, at the end of the third quarter. The share of foreigners’ holdings fell to 32 percent, the lowest level since June 30, 2009....(here)

Fuse is Lit

Great piece by Greg Canavan - highlighting the risks to Australia for 2013.  Don't be deceived by benign daily news...!

Video here.

Hello 2013!

This Blog is going to explore what is going on with Australia's financial institutions and what is going to effect them going forwards.  Australia has surived the GFC well.  But the past is no guide to the future!