Meet the Market That Beat the S&P for Over a Century
It’s no secret that emerging economies like China and Brazil have grown at a solid clip during the past year while most of the rest of the world has been mired in recession.
But did you know that one member of the developed world also bucked the trend by dodging the recession and grew its economy during the past year?
Believe it or not, this country saw exports rise in 2009. And while the United States and Europe are struggling to recover, this country has falling unemployment rates, rising housing prices and rising business investment.
In fact, this country has enjoyed nearly two decades of uninterrupted growth and is among the world’s top-performing markets during the past century… and it’s home to some delicious yields.
The nation: Australia.
A Century of Gains
While known for barbecue and beer, Australia also has a long history as one of the best equity markets on the planet. According to Dutch bank ABN AMRO’s Global Investment Returns Yearbook 2007, Australia’s equity markets have returned an average of +7.8% a year for more than a century, from 1900 through 2007 (108 years!). These returns are among the best in the world during that time frame, dwarfing a +6.6% return for the United States and a +5.8% average for the world’s 17 most-industrialized nations.
#-ad_banner-#That’s great, but what has Australia done lately?
Australia’s benchmark ASX 200 returned +37.0% in 2009, outpacing the S&P 500’s +26.5%. But the kicker is that the Aussie dollar has been one of the world’s strongest currencies, and its appreciation against the greenback has more than doubled those equity returns to +74.6% for U.S. investors.
You see, thanks to China, Australia was the only developed market country not to see falling exports in 2009 and the only developed market economy to skirt the recession and grow GDP over the year. Australia is a country rich in natural resources, which stoke the fires of the world’s fastest-growing economies. Fueled by China’s appetite for Australia’s abundant natural resources like coal, iron ore, and natural gas, exports to that nation increased +30% for 2009. And a strong economy has led to a strong currency.
The High-Yield Market
But Australia is also a domestic growth story. The country’s consumer-driven businesses may not be the first investment ideas that pop into your head when you think of Australian equities, but they are prime beneficiaries of the country’s healthy economy. And some of these stocks offer a rich income stream that will benefit as the Australian dollar keeps strengthening.
The benchmark Australian index yields 3.9%, compared to the S&P 500’s 2.1%. And these yields come from everywhere: banks (which sidestepped the problems seen in the U.S.), telecoms, gambling companies… you name it. I’ve included a list of some of my favorites below.
There are a couple of things to keep in mind. Dividends on Australian stocks trading in the United States are declared in Aussie dollars and converted to U.S. dollars at the then current exchange rate on the payment date. During the past year, the Aussie dollar has gained +26% in value against the greenback. U.S. investors received an equivalent pay raise.
As well, dividends qualify for the reduced dividend tax rate of up to 15% for U.S. investors. A foreign withholding tax of 15% is withdrawn from the dividend before it enters your account but can be reclaimed by filing IRS Form 1116, if the stock is held outside an IRA type of account.
The Future Looks Bright
With Australia skirting the global recession, its momentum seems unending for now. Australia’s central bank foresees growth of +3.25% in 2010. Australia’s jobless rate now sits at 5.7%, down from 5.8% last month. That’s almost half the 10% jobless rate in the United States and 9.8% in the European Union. The country is also enjoying rising retail sales, higher housing prices and increased business investment — and all these factors are a favorable backdrop for its equity markets.
In short, if you’re looking to for high yields and strong economic growth, Australia might be just the ticket.
P.S. — I profiled the Australian market in my most recent issue of High-Yield International. In addition to the fully disclosed table above, I provided readers with in-depth profiles of my two favorite Aussie plays. To learn more about High-Yield International and gain access to my Australian feature, keep reading…