Australian banks – downgrading sector to neutral

Chief Investment Officer and founder of Aitken Investment Management
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Firstly, I have to say I totally agree with Peter Switzer that this so called “debt levy” is not the way forward. From my perspective of writing investment strategy, the biggest risk from introducing unexpected new taxes is actually what foreign investors think. In my view, there is nothing surer than foreign investors applying a higher risk premium to Australian equities to reflect the uncertainty new taxes create. This is EXACTLY what happened when the MRRT and carbon taxes were introduced.

Tax risk premium

This is relevant to what I am writing below on the Australian banking sector, which would see short-term foreign asset allocation selling pressure if any new unexpected tax was introduced. Nobody likes political or regulatory risk, but it seems there is some growing risk in Australia ahead of this Federal Budget.

Interestingly, both the banks, as GDP proxies, and listed discretionary retailers have fallen in price over the last two days since the speculation of the “debt levy” increased.

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