Time to Consider the Land Down Under

NEW YORK (TheStreet) -- Combing the world for great investment themes can be like finding a needle in a haystack. Also, there are usually a ton of variables to digest.

There's nothing like the present moment realities to help us narrow down the choices. (However, if you learn of a very reliable financial clairvoyant -- now there's a new meaning for "FC," which usually stands for "financial consultant" -- please forward me the name and track record.)

Consider these facts, as of Friday:
  1. Precious metals, including gold, silver, platinum and palladium, have staged an impressive rally off the 2013 lows. This has helped the miners and producing companies.
  2. Oil is around $107 a barrel for West Texas Intermediate and over $110 for Brent International.
  3. The central banks of the U.S., Japan, Europe, Brazil, Australia and even China have created "safety nets" under their economies with ongoing monetary easing and record low interest rates.
  4. Australia's central bank reduced its key interest rate (similar to the U.S. Federal Reserve's Fund Rate) to a record low 2.5% on Aug. 6. This was the eighth move in an easing cycle that began back in November 2011 and lowers interest rates below levels seen during the global financial crisis.

These four facts are some of the most important reasons why I'm anticipating a rebound later this year in the Australian economy. The most powerful of the above facts is the fourth one.

The perception earlier this year that Australia's lucrative mining and natural resource industries had peaked motivated the Royal Bank of Australia (RBA) to aggressively cut its key interest rate. Another quarter point reduction to 2.25% is expected before the end of the year.

This has caused the Australian dollar to fall over 15% this year and after the last interest rate cut it traded at less than 90 cents U.S., which was a three-year low against the U.S. dollar. That's part of the good news about this investment theme.

A lower Aussie dollar makes exports more competitive, which, in turn, lifts profits for miners who price their products in U.S. dollars. It brings a sigh of relief to one of Australia's biggest companies, BHP Billiton ( BHP).

As the one-year chart below illustrates, the price of BHP shares fell hard but appear to be staging a rally. It also shows how the company's return on invested capital is a robust 32%.

BHP Chart BHP data by YCharts

Analysts have estimated that for every U.S. penny the Aussie dollar falls, it adds around $100 million Australian dollars to BHP's bottom line. The central bank knows this and is signaling more easing ahead.

"The Board has previously noted that the inflation outlook could provide some scope to ease policy further, should that be required to support demand," RBA Governor Glenn Stevens said after the last rate cut.

"At today's meeting Aug. 6, and taking account of recent information on prices and activity, the Board judged that a further decline in the cash rate was appropriate", Stevens elaborated.

The RBA is performing the equivalent of emergency resuscitation to Australia's major industries. This is also good news for Aussie banks that can borrow at record low rates and lend out at profitable spreads.

"It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy," the RBA's Stevens said after the last meeting.

One big sign that Australia's economy is rebounding is its trade surplus. Natural resource companies were in hyper-production mode while minerals and metals prices were down and energy prices were strong.

This helped improve the nation's export volume. Numbers released the day of the last RBA rate cut showed Australia had a $602 million trade surplus in June, the fifth month in a row of surpluses.

Aussie banks have been cutting mortgage rates, which has increased both its loan origination business and has been a boon to the housing industry. Home prices have begun to inch higher again.

Inflation was a benign 2.4% last quarter, well within the RBA's long-term target range of 2% to 3%. That's another key indicator that should empower the RBA to keep lowering interest rates.

A diversified way to invest in the Land Down Under is through iShares MSCI Australia Index ETF ( EWA). EWA's biggest holdings include the Commonwealth Bank of Australia ( CMWAY) representing 9.69 % of the ETF's assets.

Currently, BHP is the largest holding and reflects 9.73% of the ETF's assets. That said, the Basic Materials sectors only makes up a little more than 18% of the sector weighting while the Financial Services sector is close to a whopping 46% of the sector weighting of the ETF.

That's good news for investors because the Financial Services industry is the main beneficiary of the RBA's massive, ongoing monetary easing policies. Also, that sector tends to pay generous dividends.

This is partly why the trailing 12-month (TTM) yield for shares of EWA is a mouth-watering 6.18% as of July 30, when the share price of EWA was $23.51. Since that date the share price has risen slowly, closing on Friday at $24.08.

The five-year price chart for EWA gives us a better historical perspective for the current share price of around $24.11. The 52-week low was $22.02 and the high was $28.15.

EWA Chart EWA data by YCharts

As long as the RBA keeps cutting interest rates, blessing Australia's financial services industry and making Aussie exports competitively priced I would anticipate upside potential for shares of EWA.

Since the RBA has stated its determination to hold down rates for at least another year, consider taking an introductory position when you're ready and add more when EWA has a dip or two.

You'll be collecting a rewarding dividend yield while you're patiently waiting. For more insights into EWA, carefully study the ETF's overview.

In case you didn't know, iShares ETFs are a BlackRock ( BLK) product. BLK is a publicly owned investment manager with a $46 billion market cap.

At the very least, keep an eye on the land of kangaroos, koalas and king-sized crocodiles. May it prosper and thrive while the government protects (I hope!) nature and the Great Barrier Reef, about which I recently wrote.

G'day, mate!

At the time of publication the author is long BHP and EWA.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial editor, he specializes in unique investment strategies, overlooked stock investments, energy and resource companies, precious metals, emerging growth companies, the prudent use of option strategies,real estate related opportunities,wealth preservation, money-saving offers, risk management, tax issues, as well as "the psychology of investing". Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the ¿herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.

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