Foreign investors perturbed by high local debt

Australia’s high level of private debt is turning off foreign investors.

Westpac bond strategist Russell Jones says some international investment managers aren’t convinced of Australia’s economic strength and regard it as exposed to an external shock.

“Money managers were discomforted by Australia’s highly indebted households, the elevated level of house prices and the dependency of the banks and the economy as a whole on external financing, even with the terms of trade at close to a 140-year high,” Jones said, according to the Australian Financial Review (AFR).

Societe Generale’s London-based global strategist Dylan Grice likened Australia’s economy to “a CDO squared” – a leveraged bet on a leveraged bet, according to the AFR.

Grice warned that coal demand from China could drop if the shale gas revolution that transformed US energy markets went global.

Australia’s private household debt sits at about 150% of disposable income.