Asia buffering Australia’s risk of double dip

Australia will be vulnerable to a second financial crisis if interest rates continue to rise, according to a leading equity strategist.

“Australia is as vulnerable as the UK and Europe to a double dip on the consumer side if it raises interest rates,” said Mark Tinker, fund manager for global equity strategies at AXA Framlington.

“However, Australia does have the offset of positive growth coming out of the rest of Asia,” he added.

China will also shift structurally away from export and production to import and consumption in the near future, a move that is already underway, he said.

Australia has prospered from its proximity to Asia during the financial crisis by exporting basic materials to China, but China could soon be looking to import more advanced materials such as robotics from other markets, including Japan, he said.

China’s bank lending policies have reflected strong demand, but they have also sucked excess liquidity out of the system — something that creates a short-term concern for commodity and property markets in Asia, he said.

Problems with the Greek economy had highlighted a structural weakness within the Euro zone, he said, but he downplayed concerns of a sovereign default in Greece — as well as the possibility that problems with the Greek economy may bring down the Euro.

But the situation in Greece would probably prevent the further expansion of the Euro, he said, as well as causing a devaluation of the Euro in the short term.

In terms of other currencies, the next big focus would probably be on China’s RMB where a revaluation seems likely, Tinker said.