Australians have heavily tied their financial fates to Australian equities. Australian stocks have certainly proved to be good investments over the past two decades. The industrialisation of China boosted commodity prices, which has helped Australia’s economy expand continuously since the early 1990s. Our banks and mining stocks, in particular, thrived.
But is that the future?
China’s rise shows no sign of stopping but its leaps are likely to be centred on services and not the manufacturing that needs our commodities. As they become wealthier, emerging-market consumers are buying global brands. Amazon.com and other internet-based companies are shaking up traditional retailing. Social media is expanding. The Google and Apple consumer digital platforms will become more entrenched. 3D printing, robots, driverless cars and other forms of artificial intelligence are taking hold. Concerns about climate change are prompting a shift to a low-carbon world.
The case for investing in global equities rests largely on the premise that companies based outside Australia are likely to benefit the most from these shifts.
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Australia has some wonderful companies but many are not well placed for the future that we envisage.
That’s no surprise because 97% of the world’s listed companies are found overseas. Alphabet (the owner of Google), Apple, eBay, Facebook and Microsoft are world leaders in their fields that have no equivalents on the ASX. Nor, too, do Amazon.com, McDonald’s, Oracle, PayPal or Starbucks to name other foreign stars. Australians are familiar with these names because we use their products and services all the time.
Another way to look at the opportunity presented by global investing is to recognise the access it offers to industries that aren’t available, or are insignificant, on the ASX.
Scarce or missing industries on the ASX that are found on overseas exchanges are payments (Visa and Mastercard), fast food (Yum! Brands), healthcare (Sanofi of France), information technology (Oracle), consumer goods (Procter & Gamble), luxury brands (France’s L’Oréal), pharmaceuticals (Roche of Switzerland) and airport operators (Aeroports de Paris).
When people invest in the largest global companies they are essentially investing in the global economy because the best companies operate the world over. Your portfolio will be less troubled by any Australian woes. It will be better set to participate in buoyant times elsewhere.
Consider tying your financial fate to the world’s best companies, and not just Australian ones.
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