Skip Header

Australia: still the lucky country?

Jonathan Wright

Jonathan Wright - Fidelity Personal Investing

Australia heads to the polls tomorrow to vote in the country’s federal election. Remarkably a whole generation of Australians have grown up without ever experiencing an economic recession. But this extraordinary feat has been challenged recently and while the Aussie economy may be the envy of many nations, not everyone has benefited from the boom.

None

The Australian economy is about to approach 28 years without experiencing recession, which is defined as two consecutive quarters of negative growth. The last time two quarters of negative growth was recorded was March and June 1991.

However on a ‘per head of population’ basis, the Australian economy fell into a per-capita recession in March - the first time this has happened in 13 years. This means the country is becoming increasingly reliant on population growth to propel its economy and puts the current Coalition’s economic management into focus.

On the downside, decades of economic growth has fuelled a housing boom which has led many Australians to borrow above their means. As a result Australia has some of the least affordable housing in the world, especially in the major cities. Getting on the housing ladder is particularly difficult for young people as personal income levels have not kept pace with house prices.

But things are beginning to change as house prices, particularly in the key conurbations of Sydney and Melbourne, are falling. Demand has been dampened by lenders getting stricter and new rules restricting non-resident foreigners from buying residential property.

Homeowners will welcome the news that interest rates in the country are expected to fall later this year, as neither wages nor inflation are growing fast enough to erode the high debt levels of Australian households. The Reserve Bank of Australia expects a low inflation environment for several years to come reversing the need to raise rates.

So what are the attractions of Australia to investors? As a developed country with a population of 22 million people, it is rich in natural resources with an entrepreneurial spirit in its DNA from a history of migration first from Europe and latterly from Asia.

By the time Australia became a nation in 1901, two important commodities: wool and gold had attracted immense outside investment into the cities of Melbourne and Sydney. Over time demand for Australia’s major exports: metals, meat, wheat and wool led to the economy’s steady growth.

But this is currently at risk as China fights with the US over trade tariffs. Any slowdown in Chinese demand for Australia’s exports will surely hurt the economy further.

But it’s often in other non-traditional areas that active investors can uncover opportunities for growth.

Australia’s geographic location makes it extremely well placed to serve the emerging and growing markets of Asia. Beneath the ground lies large stretches of iron ore and coal that have been the raw materials behind China’s long economic boom. Above ground are the wheat and cattle that have helped feed China’s rapidly growing middle-class population.

This strategic position in the world is key to the country’s established food and agricultural industries. The growing middle classes of Asia will be able to afford to consume meat more often and venture into more discretionary purchases such as wine, another sector Australia excels at.

Two funds from Fidelity’s Select 50 list of recommended funds that invest in Australia as part of the broader Asia Pacific region are the Merian Asia Pacific Fund and Stewart Investors Asia Pacific Leaders.

Both funds invest in Australia’s biggest biotechnology company CSL which produces life-saving blood products for customers with rare diseases worldwide. It’s at the forefront of innovation in this sector which has made it an Australian success story you’ve probably never heard of.

That’s why a ‘bottom-up’ stockpicking approach to investing is so important. It allows investors to identify new and emerging (as well as mature and established) companies with the potential to outperform the broader index in areas perhaps under-researched by others.

In markets such as Asia Pacific where companies are not as over-researched as the blue chips are on Wall Street, investors really do have the opportunity to strike it lucky.

Important Information

The value of investments and the income from them can go down as well as up, so you may not get back what you invest. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment. Reference to specific securities or funds should not be construed as a recommendation to buy or sell these securities or funds and is included for the purposes of illustration only. The Select 50 is not a recommendation to buy or sell a fund. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.