How to Invest in Australia

Australia is not just a dream destination for many travelers, it is also one of the world’s richest countries. This makes it a popular destination for investments as well. Get informed about how to invest in Australia in this moneyland.ch guide.

What makes Australia interesting?

Australia is politically stable and is one of the most affluent countries in the world. The pacific nation – which is also a continent – has shown impressive growth for many decades now. Since 1993, there have only been two years in which Australia’s gross domestic product (GDP) did not grow by at least 2 percent. Those years were 2009 (1.9 percent) and 2020 (-0.3 percent).

The land is exceptionally rich in natural resources. For example, Australia is the world's biggest producer of iron ore. Its sizeable copper and lithium deposits may well play a key role in the electric vehicle industry.

Which indexes track the Australian stock market?

Australia’s main stock index is the S&P/ASX 200, which tracks the performance of the 200 biggest stocks listed on the Australian Stock Exchange (ASX). It lies at the core of a family of indexes published by US rating agency Standard & Poor’s (S&P). This index family also includes the S&P/ASX 50 and the S&P/ASX 300.

There is also another established index, the MSCI Australia, which is interesting for Swiss investors. The index, which is published by US financial services provider MSCI, is less diversified than the S&P/ASX 200, as it only tracks 58 stocks.

In reality, both indexes are dominated by the most heavily-weighted stocks, and these stocks are identical for both indexes. Only the exact weightings vary (see table 1). The financial and commodities industries dominate both indexes.

Table 1: The ten companies with the heaviest weightings in the indexes

Date: 18.03.2024

*Source: Amundi Australia S&P/ASX 200 UCITS ETF Dist. Date: 29.02.2024

In both indexes, the weighting of stocks is based on their free float. The indexes are both price indexes, and do not account for dividends.

Which ETFs can I use to invest in Australia?

Exchange-traded funds (ETFs) are a simple and relatively affordable way to invest in the Australian stock market. These investment funds, which are traded on stock exchanges, aim to replicate the performance of stock market indexes – in this case the S&P/ASX 200 and the MSCI Australia. All that you need in order to buy ETFs is a stock brokerage account.

In addition to the total expense ratio (TER) – the fees charged by the ETF – you should also account for the brokerage fees and custody fees charged by your bank.

Table 2: Selection of ETFs based on Australian stock indices

Date: 19.03.2024.

What are the risks of investing in Australia?

As with all investments, investing in Australia comes with a risk of losing money. While it is possible to earn substantial returns, the risk of making a major loss cannot be ruled out at any point in time. Diversifying your investments – by investing in an ETF that invests in many different stocks, for example – helps to minimize the risk of loss.

In addition to the general risks, there are also some risks that are specific to Australia:

• Excessive weighting of certain industry sectors: Australian stock market indexes are largely dominated by just two industry sectors. The financial services sector makes up more than 30 percent of both the S&P/ASX 200 and the MSCI Australia. The commodities sector makes up more than 20 percent. This means your investments are heavily dependent on just two industries. Additionally, the heavy weighting of the commodities sector results in high dependence on the global demand for commodities.
• Currency exchange risk: Australian stocks are denominated in Australian dollars. If the Australian dollar loses value against the Swiss franc, that development could negatively impact the real returns for your as a Swiss investor (see Table 3).

How well have Australian stocks performed?

When measured in Australian dollars, the performance of Australian stocks over the past five years has been somewhat higher than that of the Swiss Market Index (SMI), for example. But the devaluation of the Australian dollar against the Swiss franc can have a devastating impact on returns. Note: The performance of the MSCI Australia and the S&P/ASX 200 has been very similar, even though the number of stocks included is very different between the two indexes. This indicates that the performance is heavily influenced by the biggest Australian stocks, as these are included in both indexes.

Table 3: Comparison of returns in Swiss francs from the S&P/ASX 200, MSCI Australia, and the SMI

Dates: 18.03.2019 and 18.03.2024. Source: Investing.com. The performance figures do not account for dividends or for fees charged by funds and banks.

Important: While past performance provides a reference point, it is not a reliable indicator of future returns. Just because past performance was positive, it is still perfectly possible for stock investments to lose value in the future.

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How to invest in the Nasdaq
How to invest in the Nikkei
How to invest in Switzerland