Australia in Your Portfolio

Most investors have little or no investments into Australia despite the fact that this developed country has the growth potential of emerging nations.

Most investors have little or even nothing invested in Australia, but they should have about 5% of their international equities Down Under, says financial planner Anthony D. Criscuolo, CFP, with Palisades Hudson Financial Group.

“Most investors neglect it, and most funds that focus on the Pacific region have few or no Australian holdings,” he says.

Australia combines the advantage of a developed economy with much of the growth potential of emerging nations such as China and India, Criscuolo says. It has enjoyed 17 consecutive years of growth; even in 2009 GDP was up 1.2%.

Australia is a powerhouse exporter to the rapidly developing economies of China, Korea and India, as well as established economies such as the U.S. and Japan. It is rich in natural resources and well positioned to act as a primary supplier to the Pacific region, Criscuolo says. Spurred in part by China’s growing hunger for coal and iron ore, Australia’s mineral exports have grown rapidly over the last 10 years.

But Australia is more than an export economy, he points out. According to a research report from Matthews Asia, a leading Asian-focused mutual fund company, economic ties between Australia and Asia are extending to the consumer and financial services sectors and Australian businesses are benefiting.

The Economist

Australia’s balance sheet remains unusually strong. estimates Australia’s public debt-to-GDP ratio will be 22% in 2011

compared with the U.S.’s 64% and Japan’s 198%. Unemployment is low and the central bank keeps inflation in check.

Australia’s exposure to commodities and lower correlation to the widely held MSCI EAFE Index make it a good diversification tool, Criscuolo says. Commodities correlate less with traditional asset classes, providing diversification and protection against inflation.

Criscuolo likes the iShares MSCI Australia Index Fund ETF (EWA) which provides broad exposure to Australia’s economy, with low fees and high liquidity. Palisades Hudson has a 35% allocation to international equities; multiplying that by 5% means Australia makes up about 1.75% of a client’s equity portfolio.

Investors should not expect to get rich overnight.

"While Australia will play a major role in the rise of the Pacific region in the coming decades, its stock market can be volatile over short periods," Criscuolo cautions. "It’s a long-term strategic investment.”

(www.palisadeshudson.com) is a fee-only financial planning firm and investment advisor headquartered in Scarsdale, N.Y., with $1 billion under management.

Palisades Hudson