MARKETS SPECTATOR: Following the money trail

“It’s all about rotation into stocks with overseas earnings,” says one salesman on the desk of a major investment bank.

Foreign fund managers and local investors will continue to sell out of bank stocks, says the salesman.

The big four Australian banks have all fallen sharply from 52-week highs.

ANZ shares are down 14 per cent from a high of $32.09 on May 1; Commonwealth Bank’s stock has fallen 9.8 per cent since its high of $74.18 on May 20; NAB shares have slid 14 per cent since their high of $34.37 on May 3; and Westpac shares have plunged 17 per cent since their high of $34.6816 on May 3.

If investors buy shares they will selectively buy mining stocks and cyclical stocks whose costs fall because of a depreciating Australian dollar while their revenues rise as the US dollar appreciates against the local currency.

Miners with extensive Australian operations have costs in the local currency, which has fallen 7.1 per cent against the US dollar this month, while their earnings are in US dollars.

BHP Billiton shares are up 6.6 per cent this month. The S&P/ASX200 Index has retreated 4.2 per cent so far in May. Rio Tinto has even outperformed the market. It is down 2 per cent so far this month. Fortescue shares have risen 0.9 per cent in May.

Other stocks that may be targets for buying based on a weakening Australian currency and extensive US business exposure may be pallet and plastic packaging provider Brambles, pharmaceutical manufacturer CSL, packager Amcor and News Corp.

Brambles shares are up 7 per cent this month, CSL’s stock is down 3.3 per cent, Amcor shares had added 1.9 per cent and News Corp’s stock has gained 15 per cent.

The rise in US bond yields, say traders, is proof the world's biggest economy is on the path to recovery.

That means US consumer spending will pick up, benefitting stocks such as Aristocrat. The rationale is that more US consumers will gamble because they feel more confident about their prospects, and US casino demand for Aristocrat gambling machines will rise.

Aristocrat shares are up 9 per cent this month.