Investing in Australia

Written By Brian Hicks

Posted August 7, 2014

Have you been burned by the mainstream media touting Brazil, Russia, India, and China, even though these markets are down over the past year… past two years… past five years?

It may surprise you to learn that China’s leading stock market is down 9.6% over the last five years.

The truth is, some of these nations may not be able to hold their own. But one Pacific country provides all the benefits without all the losses.

My Pacific Gains newsletter has been focusing on Asia’s “Big Island” — Australia.

Australia represents a safe backdoor Pacific growth play supported by rock-solid fundamentals. China buys 35% of Australia’s exports (America buys only 6%) and boatloads of its oil, gas, coal, and iron ore.

Millions of Chinese tourists each year drop an average of $7,000 per visit to Australia. The nation represents a great proxy on Pacific economic growth as the world’s eighth largest stock market and Asia’s second largest.

Plus, Australia’s top “nifty fifty” stocks paid out 65% of earnings for a fat average dividend yield of 5.2%.   

Australia created 38,000 millionaires last year alone as its economy grew for the 22nd consecutive year. Its citizens enjoy per-capita wealth five times larger than that of Americans, and its low debt and strong currency make it a safe haven for Chinese tycoons eager to get their wealth out of the reach of mandarin officials. 

Australia offers many advantages over the competition, including a low national debt, the safest banks with the highest dividends in the world, and a location near the world’s fastest-growing continent of Asia, with consumers eager to snap up its resources and products. 

China buys more than $50 billion of Aussie coal each year. Japan buys trillions of yen of LNG. And South Korea buys huge amounts of beef, wine, and wheat.

And while America’s big trade deal with Asia is going nowhere — even in the wake of President Obama’s recent Asia trip — Australia’s trade deals with regional partners are going like hotcakes. 

A recent trade deal with South Korea will increase Australia’s exports to the country by 73% over the next 15 years. Australian Prime Minister Tony Abbott says the benefits will “start flowing immediately and will be long-lasting.”

Australia also inked several deals with Hong Kong just a few months ago in an effort to send more beef, mangoes, corn, wheat, and wine to this wealthy trading center.

Similar agreements are expected in the next 10 months with China and Japan.

And Australia ranks third on the 2014 Index of Economic Freedom — trailing only Hong Kong and Singapore, and far ahead of America, which has dropped to number 12. 

Australia is Becoming an Asian Country

No question about it, Australia is becoming more integrated into the Asian economic region year by year.

Trade ties between Australia and Asia have been on a dramatic rise since 2000, and a new report from HSBC forecasts that Asian markets will absorb roughly 80% of Australia’s exports by 2020, up from 73% today.

As you might expect, China is Australia’s largest trading partner by far, accounting for 35% ($91.6 billion) of the country’s total exports last year. Japan came in second, consuming nearly $51 billion in Australian exports, or 20% of the total. South Korea rounds out the top three with 8% of the total.

But even with Australia’s already strong penetration of Asia’s largest export markets, HSBC says the region’s rising middle class will boost sales in the areas of high-quality food, as well as education and leisure opportunities.

The number of Chinese tourists visiting Australia has doubled since 2010, and an emerging Asian middle class is consuming more protein-rich diets as incomes rise.

The resource sector will lead the way. HSBC projects iron ore exports will rise more than 50% by 2020, while liquefied natural gas (LNG) exports will more than quadruple as new projects come on line.

An easy way to play this story is with the iShares Australia ETF (NYSE: EWA), though it’s a bit top-heavy in banks and resource companies.

I’ll be giving you more specific ideas in weeks to come.

Until next time,

Carl Delfeld for Wealth Daily

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