With easy access to some of the world’s most recognisable brands and the opportunity to benefit from the major themes driving global growth, there has never been a better time to invest internationally, writes Adam Smith.
Australia Day is a time to reflect on all the advantages we have as residents of the ‘lucky country’ – sunshine, snags and a sturdy economy that has experienced 28 years without recession. January is also a time when many of us revisit our portfolio allocations, to ensure our investments are in good shape for the year ahead.
When deciding where to invest, there are many good reasons to consider the Australian share market – from the attractive franking credits on offer to the knowledge that you are supporting the local economy.
However, today more than ever there is a compelling case to diversify your portfolio away from Australian shares and assets and invest overseas.
Firstly, our already massive $2.7 trillion superannuation sector is forecast to grow to $4.8 trillion in the next 15 years1, crowding the relatively small local investment space and forcing both institutions and individual investors to look elsewhere for opportunities. In addition, the concentration of domestic stocks in financials and resources makes portfolio diversification difficult.
We have already seen a shift in attitudes among Australians investors in recent years, with increasing recognition of the benefits that can be gained from investing overseas.
Investing in ‘big name’ brands
One of the key benefits of having an allocation to international equities is the opportunity to invest in those brands you can see, touch and use every day. Instant brand recognition is a reason demand for shares of global businesses such as Google, Facebook, Amazon, Johnson & Johnson and Tesla continues to remain high.
Accessing such brands was once a challenge for Australian investors. However the advent of exchange traded funds (ETFs) that provide access to an entire global index in a single transaction, along with share trading platforms which allow you to purchase almost any global share in Australian dollars, means that today there is a much wider range of choice than ever before.
Tapping into important global themes
Another significant advantage of investing internationally is the ability to recognise, and invest in, themes that are driving global growth and to which the Australian share market gives little exposure.
As an example, ageing populations are rapidly becoming one of the biggest challenges of our day. Between 2015 and 2030, the number of people in the world aged 60 or over is expected to grow by 56 per cent, from just over 900 million to nearly 1.5 billion. This trend is therefore presenting many opportunities for the global pharmaceutical and healthcare sectors.
We are also seeing significant population growth and changing consumption patterns in Asian nations. According to the OECD, by 2030 Asia will represent 66% of the global world’s middle class and 59 per cent of middle-class consumption.
This represents one of the strongest demographic investment opportunities today. It is natural that as more people enter the middle class that they will have more disposable income, with increased spending on cars, mobile phones, property, healthcare, financial services and food.
Investing internationally also offers the opportunity to tap into the outperformance seen by the technology sector. In 2019 the NASDAQ 100 had its best year since 2009, cementing a historic 10 years of outperformance with gains of 38 per cent.
The Australian market represents only 2 per cent of the global investment universe, which means there are compelling reasons to consider making, or adding to, an investment in global shares.
So, as we celebrate being part of the great story that is Australia, give some thought to the many great stories out there.
Adam Smith is CEO of Saxo Markets Australia
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