Australian shares are about to take off after a mostly disappointing 2010, outperforming other developed markets as the nation thrives on emerging-market demand for commodities and as metal prices reach record highs. This month, mining stocks such as Fortescue Metals and Rio Tinto finally threw off the shackles of a new tax on miner profits to hit two-year highs, and many believe that this is just the start.
"The profit growth coming out of Australia is likely to be a lot better than the United States over the next three years," said Don Williams, chief investment officer at Platypus Asset Management. "The fundamentals here are stronger. It's hard to see the earnings of the S&P companies growing faster than Australia in the next three years," he said.
Australia's economy is entering its 20th year without a recession, the price of exports such as gold and copper are surging, workers are enjoying near full employment and the Australian dollar is trading at 28-year highs.
Offshore talk of a housing bubble and dangerous levels of consumer debt has been largely dismissed at home as unplausible. "The emerging markets will continue to be the area where you'll want to be investing. Of the developed markets, we benefit because of the commodity angle," said Lee Mickelburough, partner at Perennial Growth. "If you look at the Australian economy, it's very well placed on a longer-term basis, given proximity to China, the commodity base, the banking system in pretty good condition, population growth. The stock market itself is attractively valued. The backdrop all looks pretty good."
This year has been described by most as "disappointing."
Australia weathered the global financial crisis with surprising ease but the benchmark S&P/200 index has lost 4 percent so far this year, in contrast to its stellar 31 percent rally in 2009 which was a rebound from a 41 percent fall in 2008.
In the year to end-September, Australia's share market underperformed all but two of 15 Asia-Pacific nations, according to MSCI performance indices. Three of Australia's main industries - resources, energy and financials - were among this year's worst performers.
"The market was in better shape right through the downturn. Consequently we haven't seemed to keep pace with some of the more depressed economies coming out of that downturn," said Tim Shroeders, portfolio manager at Pengana Capital.
Even so, offshore investors will have made a nice return on Australian stocks on currency repatriation, with the main index up 23 percent in the third quarter when converted to US dollars, compared with 6.5 percent in Australian dollar terms.
Comments
Comments are closed.