Equities
Share in the Australian success story
Welcome to Australia – a place often referred to as the land of opportunities!
And this description has never been truer when it comes to Australian investment and economic growth in this country.
About the Australian Investment Market
Australia boasts one of the most profitable share markets in the world, with a 209% growth rate. This almost doubles the performance of the rest of the world’s share markets (source: Morgan Stanley Capital International). We are the second best performing market (second only to Japan) with total returns from the S&P / ASX 200 Accumulation Index around four times the returns of the S&P 500 and nearly twice the returns of the FTSE 100 (source: ASX 2006)
The Australian economy is currently enjoying its seventeenth year of uninterrupted growth while the global economy has also been growing at its fastest rate since the late 1970s. With a profitable market and opportunistic outlook, Australian investment is set to soar over the next few years, supported by strong growth and substantial industrial and commercial development.
Today, Australia boasts solid wages, high levels of consumer spending, a strong job market, high commodity prices and an increasing demand for export raw materials such as energy and other goods.
The Australian Stock Exchange
Unlike markets such as the US, Australia has one major stock exchange for listed companies: the Australian Stock Exchange (ASX).
The ASX Limited group (ASX) was created by the merger of the Australian Stock Exchange and SFE Corporation, holding company for the Sydney Futures Exchange, in July 2006.
ASX operates under the brand name Australian Securities Exchange and is one of the world’s top-10 listed exchange groups measured by market capitalisation. ASX is a multi-asset class, vertically integrated exchange group. It functions as a market operator, supervisor, clearing house and payments system facilitator. It promotes good corporate governance among Australia’s listed companies and helps educate retail investors.
The diverse domestic and international customer base of ASX includes issuers (such as corporations and trusts) of a variety of listed securities, investment and trading banks, funds managers, hedge funds, commodity trading advisers, proprietary and retail traders, and retail investors.
As a percentage of domestic market capitalisation ASX was the top ranking exchange in the world for capital formation in FY09 with a total of $90 billion raised, equivalent to around 8.5% of average domestic market capitalisation, ahead of other major exchanges such as the London Stock Exchange (7.5%), Hong Kong Exchanges (4.4%) and NYSE-Euronext (1.1%).
The latest Australian Share Ownership Study, completed in December 2008, found that approximately 6.7 million people or 41% of the adult Australian population own shares, either directly (via listed Investments) or indirectly (via unlisted managed funds). Only the United States, with 45% of share ownership among households, ranks higher.
ASX is a strong supporter of financial literacy in the community. It provides this support through a range of information and education services. Much of ASX’s education content is delivered via its website www.asx.com.au.
There are more than 2,100 companies listed on the ASX.
Perhaps the largest sector on the Australian Investment market is the banking and financial industry and associated companies (such as insurance and property trusts). There is also a substantial weight from mining and resources companies. Health, consumer staples, utilities, telecommunications and I.T. are also in the mix, reflecting Australia’s business diversity and economic scope.
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ASX and SGX to Merge At the time of going to press, the Singapore Stock Exchange (SGX) and the Australian Stock Exchange (ASX), where planning a A$8.4 billion merger. The merger proposal has yet to be approved by the Australian Government’s Foreign Investment Review Panel, which has to prove that the merger is in Australia’s best interests. |
The How-To of Australian Investment
For experienced investors and those starting out, investing in Australia is very straight forward. All trading takes place on ITS - the Stock Exchange Integrated Trading System operated by the Australian Stock Exchange. Because this system is computerised, it’s easy to check the current price and performance of a share and the overall market at the touch of a button.
Before you invest, you need to choose an experienced and credible stockbroker who will place buy and sell orders on your behalf in a professional, timely and cost-efficient manner.There are full-service brokers (who give you advice about what to buy and what to sell) and there are non-advisory brokers (who do not give advice, but follow your instruction). You can also choose between placing your orders over the phone and trading over the Internet. And there are a wide range of online tools and information services that you can use to research Australian companies and track the market.
Tax Benefits of trading in Australia
The Australian tax system has two special features that can make shares even more attractive for the long-term investor:
- Dividend imputation. When you receive a dividend from an Australian company, it may come with an “imputation credit” for tax that the company has already paid on its profits. Imputation credits can significantly reduce the tax you would otherwise pay on your dividend income. Perhaps as a result of this system, Australian companies pay an unusually high level of dividends by global standards.
- The capital gains tax discount. If you hold your shares for more than 12 months, you normally pay tax on only half of your capital gain when you sell your shares. Once again, this can make a big difference to your after-tax return.
Australia’s tax laws are complex, and everyone’s situation is different. Consult a tax advisor for information about tax laws and their application to your personal circumstances.
Four steps to owning a share portfolio
- Define your goals. Establish what you are looking for from your investments. Do you need a regular income? Or are you looking for capital growth? And what is your investment time frame? Once you know what your goals are, you’ll find it much easier to choose shares to match.
- Do your research. Prior knowledge is always a benefit when you’re starting something new. Read the papers, visit the library, go online… although you don’t have to be an expert to build a successful portfolio. Your broker should provide access to research and online tools that can help you identify and analyse potential investments.
- Start investing. One of the great things about investing in Australian shares is that you don’t need large amounts of money to get started. This means you can start small and learn as you go. But don’t forget to diversify - consider moving towards a five or 10 stock portfolio as soon as you can. Your broker may provide portfolio management tools that you can use to monitor your portfolio’s investment and keep it on track.
- Review your portfolio. It’s important to review your investments regularly to make sure they don’t become biased. Otherwise, your portfolio will gradually become unbalanced as some shares grow in value faster than others. By reviewing and then rebalancing, you can ensure that you receive the full benefits of diversification and that your capital isn’t too heavily concentrated in a single stock or sector.
