30 KIPLINGER’S PERSONAL FINANCE^ 10/2019POON WATCHARA-AMPHAIWANSTREET SMART James K. GlassmanBetting on Stocks Down Under
W
hen U.S. investors diversify
globally, they typically buy
international or regional
mutual funds or shares in companies
based in Europe, China, Japan, or
maybe Mexico or Brazil. But there’s
a great big world out there, including
countries that have strong and consis-
tent growth, an energetic and imagi-
native population, thriving businesses,
and robust trade unthreatened by
tit-for-tat tariff battles.
One of the best of these markets
is Australia, which is now in its 29th
consecutive year of annual economic
growth (the U.S. is in its 11th). On my
first and only visit, my reaction was,
“Wow, this place is more American
than America!” What I meant was that
Australia’s robust, free economy was
working even better than our own.
Australia ranks fifth among 180 coun-
tries on the Heritage Foundation’s
2019 Index of Economic Freedom,
judged by such criteria as property
rights, tax burden and government
integrity (the U.S. is 12th). Australia’s
budget will show a slight surplus this
year, according to an estimate by the
Economist
Intelligence
Unit (the U.S.
faces a deficit
of 4.7% of
gross domes-
tic product).
Australia has
no estate tax,
and its public
pension system puts our Social Secu-
rity system to shame by investing in
real assets rather than building up
huge liabilities for future generations.
Australia is a major trading nation—
the number-one exporter of coal, iron
ore and wool, and the number-two
exporter of liquefied natural gas andbeef. The trade war between the U.S.
and China might benefit Australia—for
example, as a substitute source of farm
goods for Chinese consumers.
Australia’s median wealth and GDP
per adult are nearly the same as those
of the U.S. and far ahead of Germany,
France and the U.K. With a population
of 25 million (fewer than Texas has),
the country’s economy ranks 13th in
size globally, with GDP of $1.4 trillion.
That’s just behind South Korea, which
has more than twice as many people.Popular destination. Australia is a haven
for immigrants, who tend to move to
countries where they can get jobs.
Some 28% of the country’s population
is foreign-born, by far the highest
share for any developed nation of more
than 10 million people. (The U.S. pro-
portion is 14%.) Australia ranks third,
behind Norway and Switzer-
land, on the United Nations
Human Development index,
which takes into account
life expectancy, years of
schooling and income (the
U.S. is 13th). Three ofAustralia’s cit-
ies (Melbourne,
Sydney and
Adelaide) are on
the Economist
Intelligence
Unit’s list
of the 10most livable cities in the world; no
U.S. city made the list.
With all this going for it, Australia
also has a stock market that looks
cheap. Total returns, including
dividends, for the MSCI Australia
index (roughly the 68 largest Austra-
lian stocks by market value) have
averaged 6.5% over the past 10 years,
compared with 13.5% for Standard &
Poor’s 500-stock index, the U.S.
benchmark. (Prices and returns are
through August 9.)
The current price-earnings ratio
for stocks on the MSCI Australia is 16,
compared with 17 for the S&P 500.
The price-to-book-value ratio for the
Australian index is 2.1, compared with
3.5 for U.S. stocks. The dividend yield
for the MSCI Australia index is 4.2%;
for the S&P 500, it’s 2%.
What Australia does not have is a lot
of investment opportunities that
can be easily accessed by Ameri-
cans. But it has enough, if you
know where to look.
Start with ISHARES MSCI
AUSTRALIA (SYMBOL EWA, $21),
an exchange-traded fund
linked to the index. The
fund has performed
well in 2019—it
has returned
13.9% so far
this year—but
its average
annual re-
turn for the
past five
years is
just 1.1%,
and it has
suffered
declines in
four of the past
eight full calendar
years. With anWITH THEIR SOUND FUNDAMENTALS
AND ENTICING YIELDS, AUSTRALIAN
STOCKS MAKE LOGICAL ADDITIONS
TO ANY PORTFOLIO.INVESTING Commentary