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Want to Capture Asian Growth without Trade War Risk? Invest in Australia

Tired of the U.S.-China trade war and the risks it poses to investing overseas? Invest in Australia, which benefits from Asian growth without Asian risk.


Australian Stocks and ETFs are a Safe Backdoor Way to Play Asian Growth.

Are you getting a bit tired of the on again, off again “deal” between China and America?

Well, here’s a deal that’s actually on: the formerly named Trans-Pacific Partnership trade and investment pact is ready to be inked by its 11 members—without the U.S. or China onboard.

And here’s another one: Asia-Pacific’s Regional Comprehensive Economic Partnership looks set to move forward in 2020. The 15 members have a combined gross domestic product of about $25 trillion with some of the fastest-growing countries in the world involved. It looks like India is taking a pass on this one due to their fear of intense competition.

One enthusiastic member of both pacts is Australia, which is for all practical purposes an Asian country. And there are myriad reasons to invest in Australia.


Why You Should Invest in Australia Now

Australia represents a safe backdoor Pacific growth play supported by rock-solid fundamentals. China, Japan, South Korea, India and Hong Kong are its leading export destinations.

China buys 35% of Australia’s exports (America buys only 6%) and boatloads of its oil, gas, coal and iron ore. Millions of Chinese tourists each year visit Australia and more than 150,000 Chinese students head to Australian universities.

Australia offers many advantages over the competition: a low national debt, the safest banks with the highest dividends in the world, and a location near the world’s fastest-growing continent, Asia, with consumers eager to snap up its resources and products.

China buys more than $50 billion of Aussie coal each year, Japan buys trillions of yen of LNG, and South Korea buys huge amounts of its beef, wine, and wheat.

Australia is not only engaged with China and Asia – it is becoming year by year more integrated into the Asian economic machine. Trade ties between Australia and Asia have been on a dramatic rise since 2000 and a new report from HSBC forecasts that Asian markets will absorb roughly 80% of Australia’s exports by 2020.

But even with Australia’s already strong penetration into Asia’s largest export markets, HSBC says the Pacific region’s rising middle class will boost sales in the areas of high-quality food, as well as education and leisure opportunities.

The number of Chinese tourists visiting Australia has doubled since 2010 and the emerging Asian middle class is consuming more protein-rich diets as incomes rise.

The resource sector will likely lead the way. HSBC projects iron ore exports will rise more than 50% by 2020, while liquefied natural gas (LNG) exports will more than quadruple as new projects come on line.

No wonder Australia is signing trade deals with regional partners like hotcakes.

No question about it: Australia represents a great proxy on China and Pacific economic growth, with the world’s eighth-largest stock market and the second-largest in Asia.

So the top Australian stocks present some great opportunities for international investors. There are several ways to boost your portfolio’s exposure to the “lucky country.”

3 Ways to Invest in Australia

Two broad-based plays would be the actively-managed Aberdeen Australia Fund (IAF), which has $128 million in assets and is up 19% so far in 2019. Another is the iShares Australia ETF (EWA), which is larger, with more than $1.5 billion in assets. About half of the assets in both funds are in the financial, healthcare and materials sectors.

A solid Australian stock is BHP Group (BHP), which was founded in Melbourne in 1885 and is engaged in natural resources such as petroleum, copper, and iron ore as well as silver, gold, zinc and nickel worldwide. BHP’s business is widely diversified and it offers a nice 5.2% dividend yield as a bonus.

With copper and iron ore prices on the rebound, my Cabot Global Stocks Explorer advisory is taking a close look at two other resource giants with significant exposure to Australia. To learn what international and emerging market stocks I’m currently recommending to my subscribers, click here.

Meanwhile, now is the time to invest in Australia. And the above ways to play it are a good place to get started.


Carl Delfeld is a member of the Cabot investment team, and chief analyst of Cabot Explorer.