Weighing in on the ongoing “bubble” debate, PIMCO's Robert Mead said that while the conversation about whether The Big Short is relevant to Australia’s property market remains fascinating, “focusing on the facts is crucial”.
Mr Mead made his comments in an opinion piece titled Creating a New Storyline for Australia’s 'Big Short', in which he stated that the “Australian economic miracle” is breaking records in terms of years without recession.
“Australian housing is expensive using global comparisons,” he wrote, adding that “the Australian consumer is among the most levered in the world.”
Taking huge short positions to bet against Australia’s property markets would be “dramatic”.
“Instead, an important lesson from other investors who successfully navigated the global financial crisis is [to] de-risk when you still have the choice and before prices adjust,” Mr Mead said.
“Whether you believe in bubbles or not, Australian house prices remain near their peak, and now is an opportune time to consider de-risking by diversifying portfolios away from property.
“If house prices are in fact bubbly, then the first derivative of the problem is in the property itself, so adding investment properties, in our opinion, to an already concentrated and levered portfolio should be completely avoided.”
Mr Mead suggested less direct ways to underweight residential property have already somewhat adjusted in price.
“For example, prices of bank shares and bank hybrids have dropped and now better reflect their risk.”