The Reserve Bank of Australia’s (RBA) move to use housing as a lever to balance the economy as the mining boom tails off is a “risky strategy”, according to Tribeca Investment Partners.
Speaking at the Grant Samuels Funds Management lunch in Sydney yesterday, portfolio manager Sean Fenton said the RBA is taking a risk by trying to drive down the dollar and stimulate export using housing as a lever.
Fenton dreads getting hit by a hard landing in China, where it starts to contract, steel production starts to contract and prices become low enough to force supply out of the market.
“What’s the exit strategy from this for the RBA? What do we do once the mining boom’s tailed off? This isn’t some sort of cycle that’s going to come back again,” he said.
“The huge one off structural super cycle has seen its twilight years. It’s not coming back so how do we rebalance the economy from the housing boom? What’s next? That’s really difficult to see.”
Fenton said the RBA has been aware of the incoming mining boom slump, and has been preparing for it for the last couple of years, with interest rates easing and property prices going up.
“That’s become RBA’s plan of action. A couple of years ago they changed all of their rhetoric post-GFC to allowing households to deleverage,” Fenton said.
“Property prices started to get the economy going. That has been successful in rebalancing growth.”
Fenton observed that as housing prices went up, construction started to accelerate to rebalance the economy, which drove employment and approvals.
But he is worried about how the RBA will rebalance the economy from the housing boom if something goes wrong.
“It might turn out beautifully. But if something goes wrong, there are not really a lot of bullets left given the budget position to help offset that,” Fenton said.
