Australia vs The World
A recent article has highlighted three very interesting numbers in relation to returns of shares since the GFC: 65%, 145% and 210%.
If we told you those numbers related to either Global shares, US shares and Australian shares, which would you assign to each market?
Australia has had many years of consumer confidence, low interest rates and low unemployment and every day a news story will pop up about China slowing down and rampaging debt in Europe and the US.
So it may surprise you to know that in fact it is Australia’s shares that have performed worst of the three since March 2009 (65%). Global shares have gained 145%, and US shares are up by 210% in our local currency terms.
This isn’t a specific cause for alarm, but serves as a very clear lesson in the importance of diversification from the Australian Blue Chip portfolios commonly favoured by Australian investors and Self Managed Super Funds (SMSF).
Diversification is often touted by those in the finance industry, and for good reason! By investing your assets in a variety of ways, you are able to reduce the overall risk and exposure to volatility in the market. By having a combination of Australian and Global shares, investors could have shared in the returns from the international companies which may have significantly increased their returns since 2009.
The article by Dr Shane Oliver – Head of Investment Strategy and Chief Economist for AMP, went on to detail the reasons behind the lacklustre performance by the Australian shares since 2009, listing:
Australia’s tighter monetary policy and refusal to just ‘print more money’,
The surge of the Australian dollar compared to the US dollar (up to US$1.10 in July 2011 – which was fantastic news for Australians visiting Disneyland, but unfortunately meant that Australian companies we less competitive with their international rivals), and
The slump in commodity prices which our economy is much more exposed to.
While the last few years in particular have provided numerous challenges for investors locally, more opportunities are presenting themselves in the Australian market of late. The recent interest rate cut has improved consumer sentiment to the highest levels since 2014 and this has also brought positive reactions from interest sensitive stocks such as infrastructure and telcos.
Opportunities are also presenting themselves in the US with solid employment numbers and improving wages growth creating confidence and leading to more consumer spending. We agree with Lonsec Research, noting this positive growth rate and rumours of an interest rate increase later in the year should continue to drive an increase in the US dollar valuation.
The Australian dollar now hovers in the low $0.70s and may drift lower still, making it cheaper for global companies to do business with our exporters, and providing larger returns when our clients are investing in funds tied to the US dollar.
Dr Oliver concluded:
“It remains too early to say that the period of underperformance of Australian shares is over, so there remains a case to have a greater exposure to global shares than at the start of last decade.”
We regularly provide financial advice to clients wishing to diversify their portfolio by gaining exposure to global companies such as Apple, Visa, Samsung and Nike. We pride ourselves on being experts in researching opportunities and recommending quality companies that fit in with our client’s investment objectives and retirement plans.
For an obligation free conversation about your financial future, please contact us on 03 9603 0072 or at advice@endorphinwealth.com.au
Phillip Richards
Director and Wealth Advisor
Endorphin Wealth Management
Phillip Richards is a qualified Financial Advisor with more than seven years’ experience in the industry. His expertise in investment, debt management, retirement planning and insurance will help you assess your options to build your wealth. Contact Phillip today to discuss how you can build your own wealth and plan to reach your goals.
This information is general in nature and does not take your personal situation into account. If you are interested in taking control of your wealth, contact Endorphin Wealth Management.
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