INSIGHTS

WHAT’S BUGGING AUSSIE SHARES?

Mark Lister, 15 June 2017

The Australian sharemarket has taken a pounding since April, falling sharply while others have been steadily rising, including our own.

No wonder Australian investors are finding it tough. One fund manager made headlines recently for giving everyone’s money back and declaring it all too hard and far too risky.

New Zealand has fared much better than Australia in recent years. Share prices here are about 12 per cent above the 2007 peak, and if dividends are included investors would be up more than 80 per cent since then.

It’s a similar story in the US, the UK and Japan, but not so much across the ditch. Share prices in Australia are still a hefty 17 per cent below where they got to in 2007. Ten years is a long time to wait to recoup your losses, even for those with a long-term view, especially when you’re still some way off breakeven.

There are a whole lot of reasons the Australian market has been so difficult. For a start, you have two heavyweight sectors in banks and mining that dominate everything. When these two are going well, like they were in years gone by, Australian shares fire on all cylinders.

That hasn’t been the case lately though. The banks are under fire from regulators to hold extra capital, and the government wants to tax them more. They’re facing headwinds as the overheated housing market loses steam, and investors are worried about rising bad debts and falling profit growth.

The mining sector is also facing challenges. Behemoths BHP and Rio Tinto are highly dependent on China, and while the long-term story there is intact, the best years of the resources boom are behind us.

It’s not all doom and gloom. Outside of those two big sectors, there are some genuine world class businesses in Australia.

You’ve got healthcare companies like CSL and Ramsay, and infrastructure assets like Sydney Airport and APA Group. AGL is a great utility and Amcor a quality global packaging business.  Problem is, many of these are priced to perfection as everyone chases the same few names across an uninspiring investment landscape.

There are also some major economic headwinds facing the country formerly known as “lucky”. Big budget deficits, political dysfunction, and a strong union presence ensuring the labour market remains inflexible, are but a few.

Put all that together and it’s not hard to see why the economy and the sharemarket are underperforming, or that New Zealanders no longer see Australian grass as significantly greener.

Australia used to be the next port of call for local share investors. You’d put together your portfolio of New Zealand stocks, which are highly tax efficient given our imputation regime, then you’d move on to adding Australian holdings.

These days, “rest of world” is the next stop for many, with Australia relegated to a distant third. The US, Europe and elsewhere look to be far more lucrative hunting grounds than the lucky country at the moment, and it’s difficult to see that changing anytime soon.