The Australian dollar has been riding high again in the past week or so, thanks largely to the relative safety and strength of the Australian economy, compared to the rest of the world. It’s not that surprising – European leaders are becoming old hands at attending summits, and equally skilled in getting almost nothing done while they’re there. Plenty of rhetoric that something must be done – just no actual actions. A cynic might suggest that’s exactly how they like it. The United States economy seems to be faring a little better, giving a sense that while happy days may…
The Australian dollar has been riding high again in the past week or so, thanks largely to the relative safety and strength of the Australian economy, compared to the rest of the world.
It’s not that surprising – European leaders are becoming old hands at attending summits, and equally skilled in getting almost nothing done while they’re there. Plenty of rhetoric that something must be done – just no actual actions. A cynic might suggest that’s exactly how they like it.
The United States economy seems to be faring a little better, giving a sense that while happy days may not exactly be here again, there is some light at the end of a long tunnel.
Strong and safe
In that environment, our Goldilocks economy, with low unemployment, high terms of trade and a booming mining sector, really is the envy of the world. With relatively high interest rates, we are a natural target of the so-called ‘carry trade’ – a flow of money which helps push our exchange rate up and keeps it there.
For Australian consumers, that means cheaper prices overseas. For Australian investors, it means exactly the same thing. Our dollars can now buy more shares of overseas-listed companies than at almost any time in the last 30 years. We may not be at the absolute highs of late-July last year, but we are still well above historical averages.
Spending has gone global
One of the themes of the past couple of years has been the increased globalisation of the consumer market. Examples include the pressure from overseas-based retailers, the relative cost disadvantage for Australian manufacturers and the emergence of mobile entertainment devices – more and more of our consumer dollar seems to be heading directly or indirectly overseas.
For what it’s worth, I think many of those fears are overblown. Changing consumer demands and retailer preferences have been with us since the emergence of self-serve shopping and the replacement of the ice-box with mains-powered refrigeration. That said, each wave of innovation presents challenges to the incumbents – which some will find insurmountable – and opportunities for the innovators.
The company that defines online retail
If your world-view sees a continued trend towards online retailing, it’s hard to go past the king of internet retail, Amazon.com (Nasdaq: AMZN).
The company that started as a self-styled ‘world’s largest bookstore’ has quickly expanded its range to include everything from movie rental to garden tools, and has expanded its reach to become a virtual mall by hosting other companies’ ecommerce presence. The shares are expensive on traditional metrics, but Amazon has built a culture that is hard to beat, and keeps on delivering on its goals. The ride won’t be for the feint hearted, but when it comes to long term online retail supremacy, it’s hard to see Amazon being beaten.
A perfect blend of brand and technology
When it comes to the new age of consumer spending, it’s hard to go past Apple (Nasdaq: AAPL).
Its products need literally no introduction, and while it didn’t invent online music downloading, Apple was the business that convinced the big studios to play ball – legitimising the practice and somewhat marginalising the illegal download market. Apple was the company which was able to achieve what all others before it had failed to do in genuinely popularising both the smart phone and tablet computer. As we move our spending from traditional retail to personal entertainment and online interaction, Steve Jobs’ baby is likely to benefit.
Gamers unite (and spend)
On a similar theme, anyone with a teenager (or a 20-something flatmate) will know that gaming is soaking up increasing amounts of both leisure time and disposable income.
Video games are now bigger than the movies many of them are based on, and the Kinect add-on for Microsoft’s (Nasdaq: MSFT) X-Box became the fastest selling consumer electronics device of all time recently. In that vein, the game company Activision Blizzard (Nasdaq: ATVI), the company behind games such as Guitar Hero, Call of Duty and World of Warcraft, continues to pump out blockbuster after blockbuster, and our appetite for video games shows no signs of abating.
For investors, the combination of changing consumption trends and a strong Australian dollar presents the perfect time to think about international investing. Accessing the US exchanges has never been easier. Most brokers provide access in one form or another and while brokerage can be a little higher (although there are good deals out there if you look) you shouldn’t be deterred. Just make sure brokerage represents a small percentage of each purchase.
The kicker is that I think each of the companies featured above has a very good chance of delivering market-beating returns over the medium and long term, so the strong dollar is just the cherry on top.
Last Friday (January 13), I made the case for buying shares in QBE Insurance (ASX: QBE) and committed to doing so myself this week, once the Fool’s strict trading policy allowed. I made that trade on Wednesday 18th January.
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Scott Phillips is The Motley Fool’s feature columnist. Scott owns shares in Amazon, Microsoft and QBE. 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.