Since our national day is just around the corner, I think this represents a good opportunity to discuss the merits of our national share market. The ASX is often disparaged and negatively contrasted with other share markets, like those in the United States.
Some of this criticism is justified. For instance, we don’t have the kinds of ‘world-changing’ companies the US does. Think of Amazon.com Inc (NASDAQ: AMZN), for example.
But that doesn’t mean we shouldn’t appreciate what we have, all the same. Especially this week. The ASX has a few unique features which make it special. Here are three of them:
3 reasons Aussies should be grateful for the ASX
A relatively good ESG scorecard
Ethical investing has certainly grown in importance for many ASX investors over the past few years. Luckily, in my view, the ASX is one of the better global sharemarkets on this count.
Yes, we do have a large concentration of mining and energy companies, which I know many ESG investors wouldn’t be too impressed with. One of our largest (and oldest) companies, BHP Group Ltd (ASX: BHP), has large operations in coal and oil extraction. But arguably these types of sectors are where our ESG sins end.
Take the US markets, on the other hand. They have miners and drillers to be sure (some of the largest in the world in fact). But they also have several tobacco companies like Philip Morris International Inc, as well as weapons manufacturer Lockheed Martin Corporation.
The British share market also boasts British American Tobacco, as well as global alcohol giant Diageo as large constituents. The ASX does not host these kinds of companies, ‘sin stocks’ if you will. That’s something to be grateful for in my view.
The ASX has a transparent regulatory structure
The ASX is well-known for having some of the most stringent rules and transparency regulations in the world. Insider trading is illegal and policed, and companies can be fined (or de-listed) for misleading investors.
This gives our share market a solid reputation around the world as a safe and prosperous place to invest. I also enjoy the fact that dual-class listings are not permitted in Australia, ensuring a democratic system of one-share, one-vote that doesn’t exist on other markets like those in the US.
On another issue, a few years ago, Australia banned the Chinese company Huawei from operating telecommunications infrastructure here. Other countries like Britain, the US and Canada have made similar moves. And over in the US, there are ongoing discussions regarding the merits of investing in Chinese companies.
Reporting from the Australian Financial Review (AFR) earlier this month also discussed how Chinese tech giants like Tencent Holdings and Alibaba Group Holding Ltd have been accused of assisting the Chinese government with covert espionage. Whether or not this is true, the fact it is being discussed at all is significant. That’s not something ASX companies are routinely accused of doing, which is something we should be grateful for.
Last, but certainly not least, is our unique system of dividend imputation, also called franking. When a company pays a shareholder a fully franked dividend in Australia, the dividend comes with a receipt of the corporate tax the company has already paid (the franking credit). The shareholder can then use that to offset their own income for tax purposes (or claim a cash refund if they don’t earn taxable income).
No other sharemarket offers that kind of benefit to dividend investors, at least not on the scale we do. Over in the US for instance, dividends are effectively taxed twice given that shareholders don’t get a refund on the corporate tax their company pays. So next time you get a fully franked dividend, be grateful you live in Australia!
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Philip Morris International. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alibaba Group Holding Ltd. and Amazon. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Diageo and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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