Why Investing in Australia May Be for You

Many U.S. investors overlook the benefits of investing in Australia. That’s mainly because the country is far away from Wall Street (13 time zones, to be exact), so it flies below the radar of the American business press.

However, the Land Down Under boasts a number of important advantages that few other countries can match. For example, the country is sitting on a treasure trove of natural resources, and it’s ideally located to sell them into growing Asian markets.

Investing in Australia: A Great Way to Tap Into China’s Growth

According to the CIA World Factbook, China is Australia’s largest export market, taking in 29.5% of the goods the country ships abroad, followed by Japan (19.3%), South Korea (8%) and India (4.9%).

Australia is best known as the world’s leading iron ore producer. According to the U.S. Geological Survey (USGS), Australia’s mines churned out 525 million metric tons of iron ore in 2012. That’s well ahead of No. 2 producer Brazil, with 375 million, and up 191% from 180 million metric tons in 2001. The production gains have come in lockstep with China’s growing demand for steel as it continues to urbanize. (Iron ore is an important element in steelmaking.)

However, Australia’s resource wealth goes beyond iron ore and includes coal, gold and liquefied natural gas (LNG). The country is currently the world’s third-largest LNG producer, according to the International Energy Agency, behind Qatar and Malaysia. However, it has more new LNG facilities under construction than any other nation.

Political and Economic Stability Adds to the Appeal of Investing in Australia

Thanks in part to its resource wealth, Australia was the only major country to avoid a recession in 2008-2009, and its stock market was one of the first to rebound, posting gains of nearly 130% in U.S. dollar terms from early March to mid-October 2009.

(One of our favorite things about investing in Australia is its companies’ tendency to pay outsized dividends. You can get our five top Australian dividend picks from David Dittman, chief investment strategist of our Australian Edge advisory, in our free report, “The 5 Best Australian Dividend Stocks to Buy Now.” Click here to download your free copy right away.)

The result of the recent Australian election offers another reason to be bullish. “Australia has entered what its citizens and businesses believe is a period of tranquility with the election of new Prime Minister Tony Abbott and his Liberal-National Coalition government,” reported Dittman in an October 11, 2013, Australian Edge article.

“This follows years of Labor Party infighting that saw two separate coups d’état, one where Julia Gillard toppled Kevin Rudd in 2010, and one where Mr. Rudd returned the favor in mid-2013 in the run-up to the election that resulted in a change of government.”

Investing in Australia Has Never Been Simpler

There are a number of ways for U.S. investors to tap into Australia’s improving prospects. For example, you could buy shares of Australian companies directly, including the 14 listed in our Australian Edge Conservative Portfolio and the 12 in our Aggressive Portfolio.

Several high-quality U.S. brokers offer U.S. investors direct access to major exchanges, including the Australian Securities Exchange (ASX), the country’s main equities market. That means you can buy and sell stocks just like you would on the NYSE or the Nasdaq.

In addition, many Australian companies trade on U.S. exchanges as American Depositary Receipts (ADRs). Diversified Australian miner BHP Billiton Ltd. (ASX: BHP, NYSE: BHP) is one example. Each BHP ADR represents two ordinary, ASX-listed shares of the company.

Another option is to buy units of an Australian exchange traded fund (ETF) like the iShares MSCI Australia Index Fund (NYSE: EWA), one of the investments we cover in Australian Edge’s How They Rate universe, which keeps over 100 Australian companies and other investments under continuous review.

The ETF aims to track the price and yield performance of publicly traded securities in the Australian market. Its top 10 holdings, from largest to smallest, consist of Commonwealth Bank of Australia, BHP Billiton, Westpac Banking Corp., Australia and New Zealand Banking Group, National Australia Bank Ltd., Wesfarmers Ltd., Woolworths Ltd., CSL Ltd., Rio Tinto and Woodside Petroleum.

The fund is heavily weighted toward financial firms, with 50.6% of its assets devoted to that sector, followed by materials (18.7%), consumer staples (9.0%), energy (5.8%) and industrials (5.0%). The ETF’s expense ratio is a low 0.49%.