Chart: Australian Stock/Bond Ratio

An Aussie anomaly presenting potential angst for asset allocators..

The stock/bond ratio is something investors the world over pay attention to because it both represents the most important relative performance line for asset allocators and gives clues on the path of the two main public market asset classes.

The Australian stock/bond ratio stands out for a few reasons.

• Technicals: while there is a fairly clear and strong uptrend in progress the Australian stock/bond ratio is looking very stretched vs trend (we’ve seen this indicator peak in the past when it surged to similar extremes).

• Valuations: the latest monthly pack shows Australian stocks slightly expensive, and Australian government bonds very cheap. So from a relative value standpoint bonds have the advantage.

• Macro: that said, as discussed in a recent note on the US Stock/Bond Ratio, for the stock/bond ratio to really turn down you typically need to see stocks falling, and most of the time that’s when recession is on the horizon (no clear signs as yet).

So while the Aussie stock/bond ratio could have further to run, it will pay for Australian investors to be vigilant as relative risks rise.

Key takeaway: The Australian stock/bond ratio is at historical extremes, and warrants monitoring as relative value moves in favor of bonds.

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Best wishes,
Callum Thomas
Head of Research & Founder
Topdown Charts | www.topdowncharts.com
LinkedIn: https://www.linkedin.com/in/callum-thomas-4990063/

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