Australian Unity Investments’ (AUI) chief executive officer David Bryant says the government’s recent decision to commission a study on ‘Australia in the Asian Century’ and the continued shrinking of the Australian sharemarket highlights the increasing importance of Asia to Australian investors.
“The shrinking of the Australian sharemarket following major mergers and the lack of Initial Public Offerings so far this year makes Asia an increasingly attractive proposition to help ensure diversification in equity investments.
“The domination of the Australian sharemarket by banks and resource companies has long limited domestic sector diversification, and this is becoming even more pronounced with major acquisitions such as the SABMiller takeover of Fosters, which will remove it from the ASX.
“Australia is already under-represented in sectors such as information technology, pharmaceuticals and, increasingly, manufacturing, making Asian companies a good option for investors seeking to include broader sector and geographic diversity in their equity holdings.
“In addition, investing in Asian companies means Australian investors can benefit from growth in the region – and while investor nervousness is likely to continue for a while, now could be a good time to start entering Asia and building further over time.”
Mr Bryant also argues Asia doesn’t carry the same level of risk at the moment as Europe or the USA.
“As Asia is not yet at the point where its own consumption can drive activity, and it still relies on a degree of Western consumption, it isn’t completely immune from the issues we see in both Europe and the USA.
“However, it is much less affected, its growth prospects are stronger, its legacy issues fewer, and its self-sufficiency greater – strong arguments for medium and longer term investment.
“Asia is also made up of an extremely diverse set of economies. There are mature economies like Japan and Korea where the population may be ageing but the economic capacity is still extraordinary. Then there are large but growing economies like China; independent, developed economies such as Singapore and Hong Kong; and emerging economies such as Indonesia and Vietnam.
“This mix of economies provides balance to a portfolio, whereas in Europe the collective markets can be defined very closely and are generally more mature economies. Some European countries have more legacy issues than others, and generally there is a lot of lending activity between them, so they are dependent on each other.
“Because of the complexities in Asia as a region – with many economies, cultures, languages, industries and political scenarios – an intimate understanding of all these factors is necessary before investing. This is why using a fund manager is a wise approach.
“Also, given the many different dynamics, things can change at a faster rate than Australian investors may be prepared for. Knowing when to buy and when to sell is critically important,” he said.
Mr Bryant also said investors should consider China as part of the Asia story.
“China has certainly established itself as the centre of the Asian economies and will do so for some time to come which, together with its potential and increasing role in global affairs, has attracted a lot of attention.
“What can be easily overlooked is that it has done so by being a part of Asian economies, not the totality.
“China has many benefits as well as disadvantages. The main disadvantage is the sheer scale and complexity of the country.
“However, the regional and national structure of the Chinese government means it is well-placed to juggle the needs and growth of the country, and it is increasingly involved in trade in the region. It still needs technology from mature economies in the region and imported services from emerging countries, all of which adds to the strength of other economies in the region,” Mr Bryant said.
Australian Unity Investments is the funds management arm of financial services, health and retirement living services provider Australian Unity. It has over $11 billion in funds under management (as at 30 September 2011). Its investment approach is to use its established in-house expertise in property and mortgages while also forming joint ventures and strategic alliances with other organisations with specialist expertise.
For more information please contact:
David Bryant – Phone: 03 8682 4401
The information in this document has been prepared without taking into account your objectives, financial situation or needs. You should consider whether this advice is appropriate for you.
28 October 2011