After a string of profit downgrades across Australia's retail sector there's much talk in the market of a "retail recession" as consumer spending plunges on the back of low real wage growth and ballooning household debt.
In turn this has sparked the "sell everything" calls as the prospect of Australia entering a technical recession defined as two consecutive quarters of negative GDP growth comes onto the horizon, with some economists predicting Q1 2017 may reveal negative growth.
There's little doubt that if economic conditions in Australia do worsen then the currency will weaken as overseas investors shun assets earning Australian dollars due to the currency's worsening outlook.
Moreover, the RBA may be forced to cut interest rates in order to stimulate demand in a move that is almost certain to send the dollar hurtling lower as a rate cut is not currently priced in by currency traders.
Of course it's impossible to know whether the retail downturn of calendar year 2017 is a blip or ominous warning sign, but for investors with little exposure to a weaker Australian dollar currently it would make sense to obtain some now.
Two of my preferred plays for exposure to a weaker Australian dollar remain.
ResMed Inc. (CHESS) (ASX: RMD) is the San Diego-based sleep treatment and digital healthcare specialist that has a superb track record of revenue, profit and dividend growth. It issues scrip on the ASX that represents a 1/10th interest in its NYSE primary share listing, which means the ASX scrip moves in close alignment with the AUD/USD spot rate. For example the NYSE scrip today sells for US$70, so if the Australian dollar only bought US 70 cents the local shares would be worth A$10. This morning they sell for A$9.41.
Magellan Financial Group Ltd (ASX: MFG) is a founder-led fund manager I have covered multiple times before. The core operating strength of this business is its good control on costs, strategy, and execution with staff's interests closely aligned to shareholders. It also boasts a decent track record of institutional business development and wide retail distribution networks supported by Australia's expanding superannuation pool.
The business also offers investors good exposure away from the Australian economy to the strength of the US dollar and the US's blue-chip equity markets including some of the world's leading technology stocks. The group's funds' performance underwhelmed versus their global benchmarks in 2016 partly due to the cyclical resurgence of commodity prices, although with commodity prices reversing and blue-chip shares performing Magellan may post a stronger 2017. The stock is on the expensive side at $25.10 and patient investors may get a slightly better price over the next month or two.
