A Guide to Investing in Australia
Seizing Opportunities in the Land Down Under
Australia has one of the most robust economies in the world. Since the late 1980s, the government has helped transform its economy an export-driven, high tech juggernaut. The result has been higher gross domestic product (GDP) growth rates that have averaged 3.6% over compared to the OEDC average of just 2.5%, between 1992 and 2007.
The country has also proven resilient to the global economic downturn of 2008 and beyond. In fact, the country’s economy and employment levels actually grew during the worst of the crisis. Other measures like consumer confidence and business confidence also quickly rebounded to pre-crisis levels, which many have attributed to the country’s resilient economy.
In this article, we will take a closer look at Australia's economy and how investors can gain exposure to one of the world's most promising developed markets.
The Benefits of Investing in Australia
Australia has a very competitive business and investment environment that is driven by its stable politics, solid frameworks and proximity to rapidly growing countries. These attributes have helped it rapidly expand at a rate beyond that of most other developed countries, including the United States, European Union and Britain.
Here are some specific benefits to investing in Australia:
- Stable Politics & Economy – Australia consistently ranks highly for political stability and government efficiency, while housing strong banks and a great fiscal balance sheet.
- Solid Legal Frameworks – Australia has strong corporate governance laws that ensure ethical behavior, as well as efficient legislation and intellectual property protection.
- Natural Resources & Location – Australia is situated next to the fastest growing regions in the world and remains one of the largest coal producers in the world.
The Risks of Investing in Australia
Despite its many advantages, there are a few drawbacks to investing in Australia. Higher commodity prices and pollution concerns have led to debates about imposing new taxes on resource companies. Meanwhile, the country’s dependence on China as a consumer of resources adds risk in the event of reduced demand.
Here are some key risks to investing in Australia:
- Dependence on Commodities – Chinese demand for natural resources has been responsible for a large amount of Australia’s growth.
- Higher Taxes Possible – Australia has been debating a so-called resource taxes and carbon taxes that could raise the cost of doing business for many Australian companies.
- Persistent Deficits – Australia has run a current accounts deficit for more than 50 years, which could become a problem if its commodity sector falters.
The Best Ways to Invest in Australia
There are several different ways to invest in Australia, ranging from exchange-traded funds (ETFs) to American Depository Receipts (ADRs). While ETFs represent the easiest way to invest in a diversified portfolio, investors looking for specific opportunities may want to consider ADRs or even securities listed on the Australian Securities Exchange (ASX) or others.
Some popular Australian ETFs include:
- MSCI Australia Index Fund ETF (EWA)
- Australia Dividend Fund ETF (AUSE)
- IQ Australia Small Cap ETF (KROO)
Some popular Australian ADRs include:
- BHP Billiton Limited (BHP)
- Alumina Limited (AWC)
- Samson Oil & Gas Limited (SSN)
Investors looking to purchase Australian securities directly can do so through the country’s six major stock exchanges. Many larger investment brokerages have the ability to buy and sell Australian securities, but investors should consult their brokerage or financial advisor. And finally, it’s also important to consider the tax implications of investing in foreign countries.
Key Points for Investing in Australia
- Australia has a robust economy that has avoided many of the problems seen in other developed countries over the years, due to strong commodity prices and its proximity to key Asian emerging markets.
- There are some risks to consider before investing in Australia, including its reliance on commodity prices and Asian demand, as well as the potential for unfavorable tax increases on its natural resources sector.
- Investors can invest in Australia using ETFs, ADRs, or by purchasing securities directly on one of the country’s six stock exchanges. But for most investors, ETFs represent the easiest option of the three.