Another reason to invest overseas
One of the big themes of the next 20 years will be the massive increase in spending by a growing middle-class around the world, particularly China as wages increase.
One of the big themes of the next 20 years will be the massive increase in spending by a growing middle-class around the world, particularly China as wages increase. The chart below from Platinum Asset Management's September quarterly shareholder update shows how consumer tastes develop as incomes increase.
There aren't any great surprises in the chart. It clearly shows that as consumers move beyond necessities such as milk and soap at subsistent income levels they spend more on things they don't need, such as soft drinks, travel and ultimately luxury goods such as handbags. It's a sign of the times that mobile phones are considered as necessary to daily life as food staples, sandals and soap.
What's noticeable for Australian investors is that we have very few companies listed on the Australian Stock Exchange that provide exposure to these products.
Our dairy industry has largely been taken over by foreign interests, although Bega Cheese (ASX: BGA) has been a wonderful performer over the past two years, its share price is up over 150% since listing at $2 per share.
You could get exposure to sales of staples such as Soap and Shampoo through Woolworths (ASX: WOW), Wesfarmers (which owns Coles) (ASX: WES) and Metcash (ASX: MTS), although I'd guess those types of products are imported. For exposure to mobile phones you could buy Telstra (ASX: TLS) or SingTel (ASX: SGT), as the world's largest mobile phone manufacturers are Apple and Samsung, which are listed abroad.
Coca-Cola Amatil (ASX: CCL) provides direct exposure to the soft drink market in Australia and Indonesia, but with last year's bankruptcy of Darrell Lee it shows how difficult it is to succeed producing confectionary in Australia because of our high wages, property and rents. Our beer industry has been consolidated offshore, we're not known for cosmetics or fashion (very few listed fashion retail concepts have produced great long-term returns for shareholders), though you can get exposure to increasing travel through Flight Centre (ASX: FLT) and Sydney Airport (ASX: SYD).
When it comes to luxury items you might think of handbag manufacturer and retailer Oroton (ASX: ORL), but otherwise luxury brands tend to be listed overseas.
Given that the Australian market is dominated by highly cyclical companies such as the big banks and iron ore producers, it's remarkable that SMSFs reportedly have just 1% of their assets invested overseas, particularly when Australia's economy is not going to enjoy the same tailwinds of the past two decades over the next 10 years.
It's not too late to consider investing overseas even though the Australian dollar has fallen 20% from its highs. Aside from the potential benefits if the Aussie dollar falls further, as we've explained you can also get exposure to a huge range of different businesses, industries, management teams and investment managers. Staying 100% invested in Australia means it's not only more difficult to harness global trends like increasing incomes overseas, but also you miss out on owning higher quality companies that have much longer growth runways as they sell more goods and services around the world.
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