In case you are not convinced that we have a new world order, here is an interesting tidbit from the Wall Street Journal. On Tuesday, the Reserve Bank of Australia was expected to raise interest rates. They did not. The Australian dollar had been expecting the rate increase and took a hit when it didn’t happen. The most interesting reason is why Australia didn’t make a rate change.
…[the Reserve Bank of Australia] surprised the market by holding steady at 3.75%, noting among other factors China’s efforts “to reduce the degree of stimulus to their economy.”
You may ask what China’s slowdown has to do with Australia’s monetary policy. It’s pretty straightforward.
Because a reduction of credit in China will ripple through to demand for Australia’s raw materials, China essentially did Australia’s tightening for it.
So there you have it. China is such a large trading partner for Australia that the assumption is that there will be a trickle-down effect. It used to be said that when America got the sniffles, the rest of the world caught a cold. Now, at least in Asia, that role is being played by China.
It’s not clear what the investment implications of the new world order will be, but it’s pretty clear that some traditional relationships are going to change dramatically. Your investment portfolio needs to be broad enough to have the ability to adapt.
