In noting that the four years prior to 2014 resulted in an average May loss of 5.7% for the ASX200, Azous points out the AS51 Index trades at 17.5 times forward earnings, a 15% premium to the 20-year average.
Australian banks have been clobbered this month, increasing pressure on EWA as the ETF allocates almost 53% of its weight to the financial services sector. That is more than triple the ETF’s second-largest sector weight (15.9% to materials).
As Azous notes, pressure on Australian banks could prompt the Aussie to rally against the U.S. dollar, exactly the situation the country is hoping to avoid as highlighted by the Reserve Bank of Australia taking interest rates to a record low of 2% earlier this week.
Chart Courtesy: Neil Azous, Rareview Macro