Pacific Investment Management Co. says Australian debt markets are misguided to bet the central bank is almost done cutting interest rates, as the economy will struggle to cope as a resource investment boom fades.
Australia’s economy is vulnerable to a slowdown in China, where risks are “tilted to the downside,” meaning its dollar could slide even as domestic demand shows signs of improvement, Pacific Investment Management Co. said.
U.S. investor demand for higher returns spurred Pacific Investment Management Co. to start its first exchange-traded fund for Australian bonds, which offer average yields more than twice those in America.
From skyrocketing rents in remote mining towns to the decline of the auto industry, Australia is grappling with the downside of world-beating economic growth that has driven the nation’s currency to record highs.
Australia’s Prime Minister Julia Gillard may be forced to follow U.S. Federal Reserve Chairman Ben S. Bernanke by increasing mortgage purchases as house prices slump and the nation’s biggest banks extend their grip on the home-loan market.