Aussie Banks have remained immune to bearish calls, rather there haven’t been any considerable short bets as Australian economy rode along with China’s boom. Things are different now. China takes the larger blame for Australia’s mining slowdown, as both exports and imports of Australia’s largest trading partner have taken a hit. Exports declined 3.2 percent while imports were down 0.1 percent in June, missing analyst expectations by a wide margin.
As a result of bad data coming out from China, AUD has resorted to taking a plunge every time a fundamental dips in China. AUD has declined 12.3 percent against USD over this year, incurring the major portion of its loss in the last two months. Meanwhile short interest is slowly edging up in the major four Aussie Banks. The Sydney Morning Herald notes that shorts are on the rise now after touching historical lows at the same time when Aussie banks had hit their multi-year highs in May.
Short interest in vulnerable Aussie equities has yet to reach significant levels. Nonetheless, short interest in Westpac Banking Corp (ADR) (NYSE:WBK) (ASX:WBC) is now close to 1 percent of outstanding shares after doubling from 0.47 percent. Short interest in Australia and New Zealand Banking Group (ASX:ANZ) is also edging higher, now at 0.49 percent of outstanding shares. ANZ shares are up 15.7 percent YTD.
Westpac, ANZ Sensitive to Mining Slowdown
Both Westpac Banking Corp (ADR) (NYSE:WBK) (ASX:WBC) and Australia and New Zealand Banking Group (ASX:ANZ) have been considered the most vulnerable to mining slowdown. According to estimates of Commonwealth Bank of Australia (ASX:CBA), profit of ANZ could drop by 9.3 percent to 17 percent depending on the extent of slowdown in mining industry. Short bets in Commonwealth Bank of Australia (ASX:CBA) are also increasing, up from 0.47 percent to 0.7 percent of shares, and CBA’s shares are down 2.8 percent since May.
Aussie Banks Worst Investments
The last time shorts in Aussie Banks peaked was in 2011 when the economy was at the brink of a housing collapse. UBS AG’s analysts have termed Aussie banks the worst investment across the globe in terms of USD, since U.S. treasury yields started widening in May. Shares of banks have declined by over 17 percent.
Today the Aussie currency briefly spiked up as Ben Bernanke’s comments on keeping interest rates low came to surface. Emerging and developed markets all over the world were thrown into a frenzy of buying based on Bernanke’s comments—gold reached a two week high, silver started looking up, in short everything that was happening since the Fed said they would unwind QE just took a U-turn. It seems global markets have become a toy that Bernanke plays with at leisure. We have yet to see how much AUD’s appreciation against USD’s Bernanke-driven decline can help delay Australia’s industrial problems.