A Guide To Investing In Australian Stocks

17th Sep '15 by Alex Naamani

3 comments 19072 reads

Back in June Warren Buffett told the world that he was making his first investments in Australia. The Oracle of Omaha has already announced plans to build up an equity stake in Insurance Australia Group, and has also revealed 'there is a good chance that five years from now, we will have bought one or more positions in Australian banks.' Buffett admitted that he was making these investments at the age of 84, but 'it’s been worth waiting for. Better late than never and better the best than never. So here we are in Australia and I'm delighted to be there.'

Buffett is not the only one getting excited about Australia. A growing number of subscribers have been asking us to introduce Australasian data, so many readers will be glad to know that we will be covering Australia and New Zealand in the very near future. We've put this article together to provide an overview of the investment scene down under and explain how subscribers can get involved…

Why?

Many academics have tried to explain different growth rates across countries by looking at differences in institutions (eg. legal structures) on the one hand and endowments (eg. natural resources) on the other. Australia is fortunate in that it is rich in natural resources and it also has political and legal frameworks that are conducive to economic growth. Natural resources including coal, iron and natural gas have attracted a steady stream of foreign investment since the middle of the 19th century. Between 1992 and 2007 demand for natural resources, particularly from emerging economies, helped Australia’s economy grow at around 3.6% per year, well above the OECD average rate of 2.5%.

These trends were also supported by Australia’s political and legal systems. The Australian Securities & Investments Commission regulates the securities industry, while the Reserve Bank of Australia helps coordinate the country's monetary policies. These institutions have worked to promote an environment where businesses can thrive and investors can feel safe. According to the World Bank, Australia ranks 10th in the world when it comes to ease of doing business - just two places behind the UK. The World Bank also ranks Australia as the fastest place in the world to start a business, with regulatory procedures taking just two days compared to OECD average of 15 days.

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There are other reasons UK…

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lightningtiger

18th Sep '15

Hi Alex, What a great article. Interesting to note the requirements of the ASX index are to have $1M over the last three years + $ 400k over 12 months which would seem to indicate a cash surplus for the companies & no debt.
BHP has had some bad news today on Bloomberg with President Mike Henry stating gloomy prospects of the company like "coal outlook is bleak, and terminal decline ". Hardly any comfort to any investors seeing the share price plummet as a mining stock.
On the more positive side generally speaking the dividends in Australia are much better than over here in the UK paying around 6% with the banking sector for example, as we have friends over there with a portfolio mainly in that sector. Also currently the currency is to our advantage now at over $2 to the pound compared with over a year ago.
Even if you had a shoe box full of Australian $s a year ago you would be over 10% better off now.
Since Santander Bank over here is increasing there monthly charge, more than double from £2.00 a Month to £5.00 a Month on their 123 account from January next year, which pays up to 3% interest gross. Yet another way of extracting some money from the public.
Since I made a bit of a blunder in trying to write about African Potash, another mining stock AFPO which has had the share price increased from around 0.5p to over 3p a share in the last few weeks, there are opportunities out there in Stockopedia.
Perhaps another Australian stock showing a positive uptrend needs to be shown in the form of graph Alex, would helpful & restore confidence in Australian shares.

Interesting to note Atlantic coal ATC has increased 57.9% over the last month.

Lepep

10th Dec '15

Thanks Alex
Very good overview most Australians like the company's that pay fully franked dividends as they get a tax credit of up to 30% of the dividend. These credits are paid only on profits earned in Australia and are only available to Aust Tax residents hence the reduction in withholding Tax. There are some good businesses that operate as trusts so no franking credits also those that earn all or a significant % of earnings overseas also do not provide fully franked dividends. Always good idea to talk to your tax Accountant.
Same rules apply need to look for companies with good moats, competent management preferable with skin in the game and a remuneration report you can understand.
We are amateurs and run our own portfolio. We reckon there are some brilliant med/long opportunity buys if feel confident in and prepared to take a punt on Oil and Gas. We are however at this stage very wary of property related investments.
We also got good value from article looking at from our perspective of wanting to increase our UK portfolio
Cheers

LEPEP

phildickie

15th Dec '15

Thanks Alex, good summary. As an Australian expat I have been waiting for Stockopedia to extend its excellent service and stock rankings to Australia.
Best wishes with it
Phil Dickie

A guide to investing in Australian Stocks

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Alex Naamani

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