In the last quarter of 2014, I was quite taken aback by the amount of enquiries I was receiving from international Hedge Funds, P2P Lending platforms and overseas news outlets all trying to get a gauge on the Australian Marketplace Lending and Banking scene. Not surprisingly, these enquiries seemed to follow the hugely successful Lending Club IPO.
Clearly for international investors/players the IPO validated the Marketplace Lending model. With the US and Europe relatively “mature” markets. The plan seems to be to try to identify “young” markets that might provide a new opportunity. Australia seems to be an ideal fit, given its strong and highly profitable banking sector and how close it is to NZ and particularly SE Asia.
But now in mid February, I think the timing for expanding here is better than ever and that is primarily because of the fall in the A$. Over the last few years, many investors have abandoned the currency as Australia’s bond yield premium over the U.S. has slid. The threat that US interest rates might rise, has seen an Australian 10-year yield about 50 basis points above that of the U.S, down from 130 a year ago.
The last 10 years have seen the Australian economy perform strongly on the back of a once in a life time resources boom. China remains our major trading partner, they buy up to 35% of Australian exports, but the recent slowdown in Chinese growth, coupled with the deterioration in the mining and investment outlook, has seen the AUD/USD fall from a mid 2011 high of 1.10 cents to its current 0.78 cents. Now the economy is facing iron ore and thermal coal prices down some 30%, to multi-year lows.
In response the RBA (Reserve Bank of Australia) has cut interest rates to record lows. The official rate stands at 2.25%, with the market pricing in at least one more cut over the next quarter. Lower rates and slowing growth are contributing to the weakness in the A$ and the question still remains “Can it go lower?” Of course it can. But as it nears the bottom of its fall investing in Australian assets is as cheap as it has been for many years, while the hunt for yield remains relentless.
So for any international player considering an investment in a domestic Australian platform, or looking to allocate funds to be lent across these platforms or even thinking of setting up their own Australian operation, the timing is ideal. Am I alone in this thinking, I don’t think so. I know of a number international participants who are now here or are looking to grow their presence over the next 1 to 2 quarters. For those others considering the move, first mover advantages are always highly important, with the A$ so low the timing for entry is better than it ever has been for many years.