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.
Frequently Asked Questions about this Article…
Why are Australian investors reluctant to invest in Asia despite strong trade links?
The article says Australians trade heavily with Asia—China, Japan, South Korea and India accounted for nearly 54% of exports—but often avoid investing there because investment requires longer-term trust, cultural familiarity and confidence in governance. Experts such as Lowy Institute’s Michael Wesley and HSBC research point to narrow, locally focused portfolios and a preference for culturally familiar markets (like the US and UK) as key reasons Australians shy away from investing in Asia.
How big is the gap between where Australia exports and where it invests overseas?
According to the article, Australia’s four biggest export markets (China, Japan, South Korea and India) made up nearly 54% of exports last year, but only about 8.5% of Australian investments abroad went to those markets. By contrast, the United States and Britain accounted for 51% of Australian investments abroad in 2010 despite buying just 9.5% of exports. The article also notes investments in the ASEAN 10 were only about 11% of the amount invested in the EU 27.
What did the HSBC survey reveal about Australian investors and wealth generation in Asia?
HSBC surveyed 4,400 high‑wealth individuals across Asia and found Australian respondents were lagging regional peers: 56% of Australians reported increased net worth in the past 12 months versus a 61% regional average. The survey also found 77% of Australian respondents had no plans to invest in regional or global market funds or equities, and HSBC said this narrow asset allocation has held back Australians’ wealth generation.
How has the ASX 200 performed compared with Asian markets since 2008?
The article reports that since its 2008 low point the S&P/ASX 200 Index has risen about 36%, while the MSCI Asia index—a measure of Asian markets—has risen roughly 114%, illustrating that Asian markets outperformed the ASX 200 over that period.
Are emerging markets expected to drive future global growth and returns?
Yes — the article cites that emerging markets produced nearly 80% of global growth and mentions long‑range forecasts that predict emerging‑country sharemarkets could contribute twice as much as developed markets to global growth between now and 2050. The piece warns that even if those forecasts only partly materialize, Australia’s reluctance to invest in Asia and other emerging markets could be costly for investors.
Could Australia’s reluctance to invest in Asia affect everyday investors and superannuation funds?
The article suggests it probably does: HSBC’s findings and the national pattern of under‑exposure to Asian and emerging markets are likely affecting small investors and those with superannuation, who may be missing out on international growth opportunities tied to Asia.
What practical ways to get exposure to Asian markets does the article mention?
The article indicates everyday investors can gain exposure through regional or global market funds and by investing in equities in the region. It also notes that many Australian respondents in the HSBC survey reported they did not plan to use these vehicles, which contributes to their low exposure.
What are the main reasons experts give for why investment patterns differ from trade patterns with Asia?
Experts in the article explain trade is transactional and short‑term, while investment is enduring and demands trust, cultural understanding and confidence in governance. That difference helps explain why Australians trade extensively with Asian economies yet invest disproportionately in culturally and institutionally familiar markets like the US and UK.
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