Did you know that the Australian share market makes up less than 3% of the world’s listed share market capitalisation? Find out why it’s time to look beyond Australia, and think global when it comes to your investments. (3:46 min read)
The following information does not take into account your personal objectives, financial situation or needs. You should consider if the relevant investment is appropriate having regard to your own objectives, financial situation and needs.
Are you stuck in the ASX or not even really sure which stock market to explore? Considering the Australian share market makes up less than 3% of the world’s listed share market capitalisation, here’s why we think it’s wise to go global.
Australia is a small piece of the pie
Australia is an amazing country. I absolutely love it. And when it comes to many areas – like athletics, education, and art – we punch well above our ‘weight class’.
But despite our many triumphs, it’s hard to ignore the fact we make up a very small part of the world economy – less than 2% to be exact.
South Korea’s got us beat, our entire GDP is just 12.19% of China’s, and we’re eclipsed by the United States with their 1,344% larger GDP.
In fact, put us on a chart of world economies and it’s hard to spot us, take a look:
This isn’t to say that Australia has nothing to offer the global economy. It’s just that there is a whole world of opportunities out there, beyond Australia.
For example, some of the companies you spend your time and money with exist completely outside of Australia.
The Apple or Android smartphone you use is designed and produced overseas. When you stream an episode of Vikings on Netflix, you’re paying a foreign company for the pleasure of entertainment. Similarly, when you scroll through your Facebook/Instagram feed, you’re technically helping keep a global technology company afloat.
And you know what? This is a good thing.
Because these international businesses, by and large, are benefiting the world in a tremendous way. They are bringing people together, producing valuable consumer goods, and helping the global economy boom.
Take Google’s company mission statement for instance:
“To organise the world’s information and make it universally accessible and useful.”
In my mind, that’s an extremely positive thing. It’s just one of the reasons I believe in investing in global companies that are leading the charge in technological innovation.
Growth over dividends
The other reason is the incredible growth opportunities of these very same businesses.
These companies aren’t just well-known names. Netflix is terrifying every movie executive in Hollywood, and Amazon keeps traditional retailers up at night (or any e-commerce business and related industry for that matter).
Do you want to continue using these products, steadily pay their fees and enjoy their services? Or would you rather participate in their growth as well?
You could join them in creating a better, more innovative world by either buying their shares directly, or investing in the global megatrends they’re leading.
Let’s take a look at two market leaders – one local and the other global – to get a clearer picture of what it means to invest in growth over dividends.
Amazon vs. Wesfarmers
Amazon is the world’s largest online retailer, while Wesfarmers owns Coles, one of Australia’s largest bricks and mortar retailers.
The biggest difference between the two is one has far outpaced the other in terms of growth and returns. Why? Well, for starters:
- Market share: Amazon has more left to conquer – making up less than 5% of the (US) market, compared to Coles taking up roughly 33% in Australia.
- No dividends: Amazon is focused on reinvesting for growth, therefore don’t pay dividends like Wesfarmers.
- Innovation: Amazon spends more on research and development (R&D) than all Australian businesses combined.
If Amazon is going to execute its vision of being “Earth’s most customer-centric company, where customers can find anything they might want to buy online”, maintaining a healthy R&D department is crucial.
You simply can’t grow at an Amazon-like rate without investing heavily in innovation. And not just innovation for innovation’s sake, but investing in R&D to add value for customers in a sound, profitable way.
The growth-return relationship?
You may have gathered by now that if you’re fixated on dividends, I believe it often doesn’t leave much room for strong, long-term share price growth.
While Australian-listed companies are known for their high-income yields, it’s part of what has led the ASX to lag behind its global counterparts.
There’s perhaps no more obvious way to illustrate the differences in long-term growth prospects between local and international companies, than to compare the total 10-year returns of US and Australian stock markets.
Whether you find the above data attractive will depend on your investment horizon and objectives, but it’s difficult to deny the long-term benefits of being growth orientated.
Interested in learning more about diversifying globally? Sign up to find out which companies we invest in, what trends they’re leading, and why we think looking beyond Australia is the key to savvy investing.