There are been many ups and downs in the worldwide economy and worldwide stock market over the last few years and as a consequence investor trends and investor strategies have changed dramatically. We therefore thought it would be interesting to take a look at the way in which expats in Australia are looking to the future and which specific investment sectors they consider offer potential for growth in the medium to longer term. The poll, inspired by research compiled by Barclays International Bank, has revealed some very interesting answers.
While some of the voting patterns may seem predictable there are some interesting alternatives and interesting strategies emerging. Before we look at the specific investment sectors we will now take a look at the Australian economy and how it has performed in recent times.
It is fair to say that Australia has one of the strongest economies in the world at this moment in time and indeed it is forecast to deliver growth in excess of 4% in the current calendar year. This figure may well fall if the worldwide economy worsens or the European debt debacle implodes but at this moment in time it seems that Australia is well set for yet another year of growth. Even though much of this growth is dependent upon the mining sector this perhaps masks decisions made many years ago by previous Australian governments.
It is also worth pointing out that Australia is heavily dependent upon imported skills in specific areas of the economy such as mining for example. This has caused some unrest between the unions and the government but in reality there is a skills gap which needs to be filled and there are more than enough overseas workers willing to make the move. So while the worldwide economy continues to struggle Australia continues to move ahead and its voice on the international stage is perhaps louder than it has ever been before.
Despite the fact that the Australian economy as a whole has managed to avoid falling into recession when many other countries around the world are now experiencing a double dip recession, there has been some detrimental impact upon the property market. This is in many ways a reflection of the worldwide economy and the fact that overseas investors have been withdrawing their money from overseas markets to consolidate their difficult positions at home. However, on the other hand a number of new investors have emerged because Australia is stronger than many other economies and offers a degree of “safe haven” status.
It will come as no surprise to learn that many of the more upmarket and more expensive cities of Australia have seen their property prices hit by the worldwide downturn although there are signs that the situation is stabilising. A number of experts believe that this was effectively an opportunity to take the froth off some of the more buoyant markets where perhaps prices had moved ahead of themselves. As a consequence, the vast majority of Australian expats questioned about their investment strategies have placed property at the forefront. As and when they will invest in the sector is another matter but it seems that confidence is returning to the Australian property market.
Precious metals (14.71)
While precious metals have fared very well in our online poll, to the surprise of many, the situation in Australia is slightly different to many other areas of the world. Australia already has a significant mining industry which takes in an array of precious metals and non-precious metals, all of which have been in great demand in recent times. The very fact that the mining industry is powering the economy at the moment is a perfect reflection of the underlying situation although some people believe that there is an overdependence on the industry.
If we take the most recognisable precious metal of all, i.e. gold, this has risen from $300 per ounce in 2000 to the current value of $1600 per ounce with a peak during 2011 of $1800 per ounce. This reflects the “safe haven” status which many investors attach to the precious metals market and historically this has proven to be correct. In times of stock market mayhem many investors seem to move back towards the precious metals market although as and when the worldwide economy recovers, and stock markets follow suit, we could well see investors cashing in their precious metal holdings in favour of stocks and shares.
Classic cars (11.76%)
For some reason there seems to be an above-average interest in classic cars across Australia although on the whole, on a worldwide basis, there has been renewed interest in this particular market. Enthusiasts are now willing to pay big money for classic cars and indeed a number of high-profile auctions and sales have been reported in the wider media. This is a very specialist area of the investment arena and not something which private investors should consider without taking professional financial advice.
On the whole the value of various classic cars comes down to their rarity value although at this point in time there is renewed demand because of the state of worldwide stock markets. An investment in classic cars is in theory a long-term investment because these assets may be very difficult to liquidate at an acceptable price at short notice. Therefore, if you are looking to invest in classic cars, whether an enthusiast or investor, you should probably look on these assets as long-term investments as opposed to potentially short-term cash cows. There is also some debate as to whether these markets will be as popular as and when stock markets returned to favour but that is another debate for another day.
As with many of the more provincial investment sectors outside of the traditional stock market and property sectors, there has been renewed interest in art in light of the ongoing worldwide economic difficulties. While some may see the art market as something of a niche market it is worth mentioning that the market itself is worth around US$100 billion per annum with around 30% of this investment coming from China. When you take into account the fact that China is currently enjoying economic growth which few other countries in the world can even dream of at this point perhaps it is not surprising to see investor enthusiasm.
If you’re looking to invest in the art market, again whether as an enthusiast or investor, you do need to be fully aware of the peaks and troughs the sector can and does experience together with how fashions and trends can impact prices very quickly. As a consequence it is highly advisable to take professional financial advice before committing yourself to a significant investment and indeed it is worth considering what percentage of your overall investment portfolio should go to this arena.
Stocks and shares (8.82%)
It is a shock to see stocks and shares so far down the list of potential investment opportunities for expats living in Australia when you bear in mind they are the basis of each and every economy around the world. Local stock markets not only offer investors the chance to trade their investments but also offer companies and governments the opportunity to raise funds direct from investors. However, if you take into account the current economic climate around the world and the impact this has had on each and every stock market then perhaps it is a little less surprising to see investors withdrawing from this particular arena in the short term.
In the longer term, as economies begin to stabilise and grow, it is highly likely that we will see a return to more traditional stocks and shares investments as stock markets move back into favour. The very fact there is a significant number of worldwide investors currently licking their wounds with large investment losses has perhaps not helped investor sentiment although human nature often leads us to the overly pessimistic in times of trouble and overly optimistic in times of growth. At this moment in time it is difficult to say when stock markets will return to favour but the very fact they are the focal point of every economy around the world means that at some point they will rise again.
Fine wine (0%)
The fine wines market attracted no votes from expats living in Australia which is perhaps a little surprising when you bear in mind the country’s reputation in the fine wines market. This is a market which continues to grow, attracting investors from Asia, Russia, Europe, South America and India to name but a few. It is also one of the more provincial investment markets which has benefited not only from genuine investor demand but also a flight to “perceived safe investments” by investors who have had their fingers burnt on the stock market.
It would be interesting to see why fine wines have attracted so little interest in Australia when you bear in mind the increased exposure across Europe and across the world. It may well be the fact that this is again a specialised market where you need to take professional advice to give yourself the best chance of making money. It may also be that some investors believe you have to physically buy fine wines when in reality you can buy a share of pooled investment funds which will invest across a whole range of fine wines on your behalf. These units are more liquid than the fine wine investments themselves if you pardon the pun.
The antiques market in Australia would appear to be relatively non-existent according to this poll carried out on the expatforum.com amongst expats living in the country. This is all the more interesting when you bear in mind that experts have seen growing interest in the antiques market as stock markets around the world continue to struggle. Again, this is a highly specialised area of the investment arena and one which does require professional advice before committing any significant funds.
It would be interesting to see why there were no votes for this particular investment sector and indeed whether it is something which can be encouraged and nurtured in the Australian investment arena of the future. There may well be genuine domestic demand for antiques which has so far passed expats by or it may just be the fact that more and more people are now looking towards property both as an investment and as somewhere to live.
Risk reward ratio
If you are ever looking at an investment you need to consider a number of factors and one of the major factors is the risk reward ratio. This in effect compares the potential risk to your investment against the potential rewards and allows you to compare and contrast. In a perfect world you would want as little risk as possible with as much potential growth as possible although in reality these types of investments are very difficult to find. As a consequence, you will need to consider each investment on its own merits and take into account not only the specific asset but also the wider market and the wider economy.
To give you an example of how the risk reward ratio works and can impact worldwide markets in an instant, we will take a look at the sovereign debt market in Europe. As the European debt debacle continues a number of investors have withdrawn from the money markets and those who remain are now asking for a greater return on their investments. As a consequence we recently saw the rate on sovereign Spanish debt increase to around 7% which is probably around double the amount the country would expect to pay for finance in normal times. This was directly as a consequence of the perceived higher risk that lenders were taking and the potential for third parties to default on their liabilities and leave investors nursing significant losses.
To carry on this story, we recently heard that the German Chancellor has softened her stance on a European bailout fund investing directly into European banks which would bypass local governments leaving their debt levels as they are today. The opportunity for direct investment from the European Union into the banking sector could therefore potentially reduce the risk of default by various governments – as a consequence sovereign interest rates fell. This is another way in which the risk reward ratio can have a major impact upon the cost of finance and financial markets.
In years gone by it was the US economy which pretty much led the world with other economies moving higher or lower in tandem with the US economy. However, while there is no doubt that the US economy still has a major impact upon the worldwide economy it is the European debt debacle which is currently taking centre stage. If the European Union is unable to sort out this mess then there is the potential for money markets to grind to a halt which would impact upon every individual economy around the world. Therefore, at this point in time it is events within Europe which are having an impact upon worldwide stock markets, money markets and investor sentiment and indeed is the reason why all major countries around the world appear willing to invest money in a bailout fund.
The reality is that each and every country around the world has a vested interest in the European situation being resolved as soon as possible therefore any investment is quite simply an investment in its own future. There are still some concern as to when the situation will be resolved although slowly we seem to be nearing the end game with Chancellor Merkel recently softening her stands on direct investment and direct bailout funding for various European banking sectors. This could be a pivotal moment in the rescue of the European economy and one which investors around the world have been waiting for.
It would probably come as no surprise to see the property sector by far and away the most popular investment arena within the Australian expat community. Some may also have expected the precious metals market to fare very well but there are few who would have guessed that stocks and shares would appear to be so out of favour amongst expats in Australia.
The reality is that the Australian stock market has performed better than most but it has also been impacted by the ever-growing European debt issue. As a consequence it seems that many investors are losing faith in stock markets at this moment in time and looking towards alternative investment arenas such as the traditional property market and some non-traditional sectors such as art and classic cars.
Historically there is evidence to show that some of these less traditional investment markets receive more interest during these difficult economic times, and vice versa. Once the economies of the world have stabilised and moved into growth territory we will likely see a transfer of assets and investments from non-traditional markets into more traditional stock market type investments. However, when this will be is anybody’s guess because at this moment in time some experts are suggesting it could take decades for the European situation to fully flush through the system.