Australia Shines

The sun is shining bright on "Down Under".

The country didn't go into recession in the current global downturn; its stock market is hitting the 14-month high, its currency is also hitting the 14-month high after the central bank RAISED the interest rate. Businesses are bullish on the future growth, and consumers are spending. Unlike EU and the U.S., real estate values have INCREASED this year.

That's what a healthy, growing economy does, I think.

Australia Helped by Rate Increase as Stocks Advance
(10/7/09 Bloomberg)

"Oct. 7 (Bloomberg) -- Mining companies and brewers are benefiting from an Australian economy that is growing so fast the central bank suddenly raised interest rates, buoying the currency and giving global investors another reason to favor Down Under among the world’s hottest markets.

"“If you bought stocks that you thought were exposed to economic growth, you can feel more confident that you made the right decision,” said Matlock, manager of the International Equity Fund at Huntington, which oversees $15 billion. “What the Australian central bank is tacitly saying is we’re pretty confident our economy is on firm-enough footing to withstand an increase in rates.”

"Australia raised its benchmark rate yesterday, becoming the first country in the so-called Group of 20 nations to boost borrowing costs since the start of the credit crisis, after it avoided a recession and Reserve Bank Governor Glenn Stevens said the “risk of serious economic contraction” had passed. Gross domestic product will rise 0.7 percent this year, bucking the 3.4 percent slide for advanced economies, the International Monetary Fund said last week."

Analysts and fund managers there think Australia has both the growing domestic industry that supplies to increasingly confident consumers and the export industry that produces what people in the growth region (mostly China and Asia) wants.

There are those, as featured in the Bloomberg article, who think the central bank raised the rate too soon with the economy still not on a sound footing. However, as many traders of stock markets know, it's the reaction to the news that matters, at least for now. Judging by the reaction of the Australian stock market to both the rate hike and the strength of Australian dollar, they like what they see down there.

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