The high Aussie dollar allows you to potentially buy some U.S. quoted global leaders on the cheap.
Apple (Nasdaq: AAPL), Amazon.com (Nasdaq: AMZN), ExxonMobil (NYSE: XOM), Microsoft (Nasdaq: MSFT) and Nike (NYSE: NKE) have something in common, other than being the leaders in their respective fields.
As you can tell by their stock exchange symbols (or ‘tickers’ in the vernacular), all of these companies have their primary stock market listings outside Australia.
Banks, Miners and the rest
The Australian market is quite concentrated – a large chunk of our market value is absorbed by the big four banks, BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO). Throw in News Corp (ASX: NWS), Telstra (ASX: TLS) and the retailers Woolworths (ASX: WOW) and Wesfarmers (ASX: WES), and you’ve rounded out the top ten Australian stocks by market capitalisation, which together make up almost 40% of the value of our market.
That’s concentration in anyone’s language.
While we have global leaders in a few industries – think BHP Billiton, Cochlear (ASX: COH) and Computershare (ASX: CPU) – many of the market leading consumer and industrial companies are based overseas.
There’s a big world out there
In fact, at only 2%, Australia’s stock market represents only a very small fraction of the global equity market.
In other words, 98% of the world’s equities are outside our borders. Big doesn’t always equal beautiful, and it’s certainly possible to over-diversify , but no-one in their right mind would consciously ignore 98% of the opportunities available to them, simply on the basis of the geographic location of a market listing.
Because of the relative ease of investing in Australia, compared to the US, Europe or Asia, that’s effectively what investors do when they only invest on the ASX.
Time to travel… and invest
Depending on your view of the Australian dollar, now may also be exactly the right time to consider investing overseas. I’m not a currency expert or forecaster, and I have no way to accurately predict what the dollar will do over the short or long term.
The dollar’s current strength is largely due to three key (related) factors – namely the strength of the Australian economy, the world’s (read: China’s) current demand for our minerals, and the differential between high Australian and much lower US and European interest rates.
I think the risk is probably weighted towards the dollar falling rather than rising over the medium-long term. Either way, if I can find international companies worth buying shares in, I’d certainly rather be doing it while the dollar is on the high side of historical norms.
Broaden your exposure
Not only is the Australian market a very small percentage of global equity markets, but we have a high concentration of financial and mining companies and a dearth of certain sectors.
Whether food, clothes, recreation or the automotive industry, many categories tend to be dominated by global players. Companies such as H.J. Heinz (NYSE: HNZ), Nike and McDonald’s (NYSE: MCD) are the leaders in their respective fields in Australia. The likes of Pacific Brands (ASX: PBG) and ARB Corporation (ASX: ARP) do provide local options, but you simply can’t get broad direct exposure to the large global leaders on the ASX.
Other glaring omissions from our market are significant technology and pharmaceutical sectors. These categories are dominated, almost exclusively, by the global players, including Apple, Microsoft and Intel (Nasdaq: INTC) in tech, and ‘big pharma’ players such as Pfizer (NYSE: PFE) and GlaxoSmithKline (NYSE: GSK). To have exposure to these sectors in any significant way outside of specialist players, you simply have to look further afield than Australia.
Basket case or shopping basket?
I’ve been asked before whether now is the right time to be buying US or European businesses, given the malaise in those economies at present.
I think it is – assuming you’re buying the right companies – for a couple of reasons.
Firstly, all of the businesses I’ve mentioned are more accurately characterised as ‘global’ rather than American or European companies. More often than not, more of their sales come from outside their home countries than within. Secondly, it’s often true that the time to buy is when the markets are pessimistic, as they are at the moment.
In an increasingly globalised world, the companies that are increasingly winning in the market are those that can utilise their size and scale to create brands and distribution networks that are superior to their rivals. The success of that strategy is clear when you think about our favourite brands in almost any industry. The same is true of ‘business to business’ brands such as IBM (NYSE: IBM) and GE (NYSE: GE).
The smattering of international tickers in this article alone should give you a good sense of the breadth of opportunity overseas.
I’m not suggesting any or all of these companies are necessarily buys right now, but with the Aussie dollar still going strong, and global share markets still well off their highs, now might just be the time add some international companies to your watchlist.
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Scott Phillips is The Motley Fool’s feature columnist. Scott owns shares in Amazon.com, Microsoft, Telstra, Woolworths, McDonald’s and Pacific Brands. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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