Mr McGarry, a hedge fund veteran, has doubled funds under management to $185 million in the past six months with annual returns after fees of more than 22 per cent.

The "widow maker" sobriquet refers to the fate of long-short strategists, particularly from overseas, that have lost money attempting to short Australian banks and property stocks after misinterpreting fluctuations for a secular downturn.

Intense focus

Martin North, principal of Digital Finance Analytics, an independent analyst who advises financial service companies, said the sector is under "intense focus from international investors".

Mr North, whose clients include global investment banks, said New York, London and Hong Kong-based hedge funds are seeking more detail on the sometimes conflicting claims about the market outlook.

A flood of warnings about deteriorating market conditions and the flow-on impact for the broader economy is creating unprecedented interest in the trillion-dollar sector. Rob Homer

He claims to have received more calls from major funds in recent weeks seeking more detail about the local market than any time for the past decade.

"From a global perspective the Australian market is a small market," Mr North said.


"But if it does move the quantum could be significant and therefore interesting."

Exchange rate fluctuations and leverage could boost returns from big successful trades.

"Australian housing and banks have traditionally been widow-makers for short sellers," says Ben McGarry. Ryan Stuart

Other analysts and long-short traders support claims about increasing interest of major overseas and local funds looking for opportunities to short leading stocks, which means betting a stock, sector or broader benchmark will fall in price.

This would range from listed banks to property developers and retailers.

There is also renewed interest from the funds about tapping into the market by creating sophisticated finance products tailored for local market conditions.

Hedge funds may invest in less conventional assets, such as high yield bonds, synthetic assets, derivatives, unlisted shares and other hedge funds.

Global hedge funds are working on sophisticated trading strategies for shorting Australian property stocks. David Rowe


Ideas being considered range from creating a basket of shorts, derivative strategies or shorting an index.

"They think there is going to be a lot of volatility," Mr North said about overseas funds' view of the local market.

Seeking clarity

There is no evidence these strategies are currently being used, analysis of short trades reveals.

Fund managers are seeking clarity from a wide range of views about the market outlook.

Market bears, such as Morgan Stanley, claim prospects for the nation's residential property market have slumped to record lows with no trough in sight. Wayne Taylor

Market bears, such as Morgan Stanley, claim prospects for the nation's residential property market have slumped to record lows with no trough in sight.

The investment bank, which recently claimed prospects for growth are the worst in 30 years, warns credit continues to tighten, sentiment is slipping and additional stock is hitting the market, pushing rental inflation below 1 per cent.


It is warning "at this stage" that prices could slump by another 10 per cent as all six key indicators in its housing model – ranging from demand/supply balance to credit supply and house price expectations – turn negative.

The bank's predictions are based on an in-house model that continually monitor a range of key criteria.

By contrast the Australian Prudential Regulation Authority claims its crackdown on home loan lending standards does not appear to be hurting credit growth or the economy.

It also claims the "heavy lifting on lending standards" is completed.