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Shy investors on a slow boat to Asia

Emerging markets draw our exports, but there's also money to be made with a stake in their companies.

Emerging markets draw our exports, but there's also money to be made with a stake in their companies.

IT'S high time Australians shrugged off their trepidation about investing in Asia. The reluctance to invest in the region has created a curious disjuncture between places where Australians trade abroad and where they invest.

Our four biggest export markets China, Japan, South Korea and India accounted for nearly 54 per cent of all our exports last year, but only about 8.5 per cent of Australian investments abroad. Two countries much further away the United States and Britain accounted for 51 per of Australian investments abroad in 2010 even though they purchased just 9.5 per cent of Australia's exports.

Canada, Germany, France and the Netherlands are all among the top 10 destinations for Australian investment even though their importance as trading partners is dwindling. Australia's investments in the group of "ASEAN 10" nations was just 11 per cent of that invested in the "EU 27" at the end of last year.

Australia's lack of enthusiasm for investment in the Asian emerging markets is costing money, according to new research. An HSBC survey of 4400 high wealth individuals across Asia showed Australian respondents were lagging their regional peers in wealth generation.

Australians were the third lowest across Asia in wealth generation in the past 12 months, with 56 per cent increasing total net worth compared with the regional average of 61 per cent. Graham Heunis, HSBC's head of retail banking and wealth management, put this sluggish performance down to the narrow investment portfolios favoured here.

The majority of Australian respondents had a surprisingly large amount invested in local stocks despite the S&P/ASX 200 Index's underperformance relative to other indices in the region since its 2008 low point. In that period the ASX 200 has increased 36 per cent in comparison to the MSCI Asia a measure of Asian markets which has increased 114 per cent, HSBC said.

The survey found 77 per cent of Australian respondents did not have plans to invest in regional or global market funds or equities.

"Australia's affluent are missing out on international wealth opportunities, specifically in Asia and emerging markets," Heunis said. "Emerging markets produced nearly 80 per cent of global growth, yet Australians are not capitalising on this growth engine."

And it's probably not only the wealthy investors polled by HSBC that are missing out. The national reluctance to invest in fast-growing Asian economies is almost certainly affecting small investors and all those with superannuation as well.

"The irony is that our economy is intrinsically linked to Asia, especially China, yet as investors we are not prepared ourselves to bet on places like China by investing there," Heunis said.

So if Australia is so dependent economically on Asia, why don't we invest more there?

Lowy Institute head and Asia expert Michael Wesley said the answer lay in the differences between trade and investment.

Trade was a relationship that lasted only as long as each transaction and did not require a lot from either party. Investment, however, was a much more enduring relationship that required a high level of trust and understanding.

"For that reason Australian investment trends go towards countries with which we are much more culturally comfortable and trusting of their governance arrangements," Wesley said.

The patterns of trade and investment "tell us a whole lot" about the depth of Australia's engagement with Asia, he said.

Current trends in the global economy could help drive change in the patterns of Australia's overseas investments.

In the past, investment in North America and Europe may have delivered acceptable, safe returns to Australian investors. But the north Atlantic's economic problems mean many investments there could deliver relatively poor returns for an extended period.

Some long-range forecasts predict emerging-country sharemarkets will contribute twice as much as developed-country markets to overall global growth between now and 2050.

Even if that's only half right, Australia's apparent reluctance to investment in Asia will prove very costly.


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