In the flawed beauty contest unfolding among sovereign debt issuers, Australia is among the least ugly contestants.
That's hardly the impression one gets perusing the local media. There, it's all about how Prime Minister Julia Gillard is wrecking the economy, high taxes are destroying prosperity, and China's slowdown is an omen of gloom and doom Down Under.
Yet in a world devoid of genuine safe havens, Australia is a standout. Last month, it became one of only 14 economies to be assigned AAA ratings from the three main credit assessment firms when Fitch Ratings raised it from AA+, and rightfully so.
Australia is catching the attention of the world's top bond investors, Bill Gross of Pacific Investment Management Co. included. Gross, who oversees the biggest bond fund, says Australia is among the “cleanest dirty shirts” out there.
The question is, are investors mulling a move into Aussie debt too late? In markets, there's often a first-mover advantage, particularly when credit upgrades are concerned. In this case, though, the answer is no. Those pouring capital into Aussie assets in the weeks ahead probably won't be disappointed.
Since Standard & Poor's yanked away America's AAA rating in August, investors have been betting on the next top credit to fall. France? Hong Kong? Britain? While speculators short the debt of governments that may be downgraded, Australia's fortunes are moving in the other direction.
Risks abound, of course. China is the biggest. Resource-rich Australia has been betting more and more on Chinese demand over the last decade. As Europe's debt crisis closes in on Asia, Australian growth may take a hit.
The good news is that central bank Governor Glenn Stevens has 425 basis points worth of interest rate cuts he can order to safeguard growth. Treasurer Wayne Swan has some latitude of his own. Australia forecasts a budget surplus of A$1.5 billion ($1.5 billion) for the fiscal year starting July 1, 2012.
While Australia has its fair share of challenges, they're enviable ones at a time when Europe flirts with default, the U.S. risks deflation and Japan endures yet another forgettable decade. Just something for bond buyers to keep in mind as AAA credits become rarer and rarer. How about those Aussie shirts?
(William Pesek is a Bloomberg View columnist.)