The 21st century has been proclaimed the “Asian century”, marking the region’s rise into the world’s economic powerhouse. For Australian investors, taking advantage of this long-term trend means considering the impact on your investments and planning accordingly.
China’s rapid growth into the world’s biggest consumer of resources helped spark the mining boom, producing bumper profits for the big miners and driving a wave of investment.
The boom may have faded, but with the ongoing industrialisation of China, India and the rest of the region, investing in resource stocks should yield rewards, particularly the larger diversified miners capable of withstanding the boom-bust cycle. Others to benefit include those in export-oriented sectors such as agriculture, education and tourism.
However, given the opaqueness of many Asian markets, it can be less risky and cheaper to buy stocks of Australian companies selling to or active in Asia, rather than buying Asian stocks directly, unless acting on expert advice.
Buyers from China, Japan, Malaysia and Singapore were among the biggest investors in Australian real estate in fiscal 2012, with the Foreign Investment Review Board approving more than $59 billion worth of investments.1
However, rules that largely restrict foreign buyers to new dwellings, off-the-plan properties or vacant land mean the impact on house prices is limited. Australian property developers can benefit by incorporating feng shui principles, while investors could consider targeting specific areas in demand by overseas students and their parents.
While currencies do not always move in line with economics – an issue Australia’s Reserve Bank has been grappling with – ultimately they should reflect the fundamentals. In Asia’s case, this means a long-time rise in the value of China’s renminbi as it gains importance in the region, as well as the currencies of other nations enjoying economic growth.
Foreign exchange investors could seek to target the currencies of these countries, although perhaps only accumulating small holdings. This is due to the risk of government intervention to dampen currency appreciation in these typically export-driven economies.
Despite claims of “selling off the farm”, Asian investment in Australian agriculture is likely to increase to satisfy the region’s growing population and its richer tastes. The expanding Asian middle class is increasing demand for beef, dairy and other foods, with the amount of meat consumed in Asia rising 14 times between 1961 and 2009.
Global food demand is expected to increase by 70 per cent over the next four decades, with much of this from Asia2. Commodities trader Jim Rogers has warned of “serious food shortages” in the future, saying “stockbrokers will be driving taxis, while the farmers are driving Lamborghinis”.3
Investors can gain exposure to the sector by buying agricultural stocks or managed funds, or traded commodities including grain and wool futures and options listed on the Australian Securities Exchange.
By targeting the opportunities, investors can take advantage of the Asian century and not be left behind in the ‘old world’ of slower growth. However, it is worth remembering that investing in stocks, shares, currencies and commodities often come with a higher degree of risk than say, cash savings. Always seek independent advice from a registered professional financial planner.