Despite Australia’s economic involvement with Asia, and indeed reliance on the region, Australians are underinvested there, David Bryant, chief executive officer of Australian Unity Investments (AUI), has warned.
“Not having Asian investments in their portfolio could become a medium- to long-term impediment to savings growth for Australian investors,” Mr Bryant said.
“Many investors are too complacent about this shortfall, misleading themselves that their portfolio structure and overall investment strategy make up for any lack of Asian investment.
“They have simply accepted a number of myths about investing in Asia - such as if they are invested in Australian companies, or if they have an international component in their portfolio through US or European equities, then they have exposure to Asia as these are major trading partners of the region.
“Acceptance of such myths betray a lack of understanding verging on complacency that, if not addressed, could prove costly to their portfolios.”
Mr Bryant said that while it is generally accepted that this is the Asian century for trade and power, investors haven’t accepted the sense of investing in the region to participate in its inevitable growth.
“It makes particular sense for Australians to invest in the region because of our growing relationship with Asian countries,” he said.
“Australia’s four biggest export markets are China, Japan, South Korea and India which, when combined, account for over 53 percent of our exports. Yet only 8.5 percent of our total international investments go to the region.1
“On the other hand, our traditional trading partners, the US and UK, the powerhouses of the nineteenth and twentieth centuries, now only take 9.5 percent of our exports, yet account for 51 percent of our investments.2
“This indicates a blinkered approach that does not recognise time has moved on,” Mr Bryant said.
He said that he had heard anecdotal evidence from investors showing that they simply don’t understand the investment realities of Asia.
“For example, investors seem to think that markets in Asia are less secure than in developed countries because of corruption and weak regulation.
“In believing this they are overlooking the scandals in Wall Street, London and other western financial and economic centres – including Australia with Storm Financial, Trio and the Australian Wheat Board (AWB) among others.
“While Asian governance varies enormously country by country, main investment centres such as Japan, Singapore, Hong Kong and Korea, are highly efficient and transparent.
“Nor do we recognise and give credit to the strength of Asian economies – today Asian central banks collectively hold about half the world’s foreign exchange reserves.3
“Virtually all forecasts and predictions suggest Asia will continue to grow dramatically and, by the middle of this century, experts believe it will account for over half of all global trade.
“Such evidence means that it simply doesn’t make sense for Australians not to be investing in a region with such strong attributes and outlook,” Mr Bryant said.
1 Emerging markets to account for 80% of future global growth: ex-IMF chief, English.news.cn, June 2011
2 HSBC survey (Nov 2011) quoted in ‘Investment aversion will cost us dearly’, Sydney Morning Herald, November 2011
3 ‘Why Invest in Asian Credit?’ PIMCO, May 2012