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Australia Investing
How Can a Beginner Invest in Australia?
Jun. 29, 2023 01:50PM PST
The ASX presents investors with opportunities to gain exposure to Australia’s strong economy and the companies operating in the country. Here's how beginners can jump in.
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Australia has earned its place as one of the world’s largest and most diversified economies, with its value hitting US$1.7 trillion in 2022. In fact, the country had nearly 30 years of economic growth without a recession prior to COVID-19.
A huge part of Australia’s economy is locked up in mineral resources, which explains why the nation is home to the world’s second largest mining company, BHP (ASX:BHP,LSE:BHP,NYSE:BHP), as well many of the biggest names in the sector globally.
More than 350 mines operate across the continent, and they target 19 different mineral commodities. Australia’s most common operations are gold mines, which saw a collective output of 320 tonnes in 2022, tying with Russia for second place in global gold production. Both countries were just 10 tonnes behind China, according to the US Geological Survey.
With those factors in mind, it's no surprise that investors interested in Australia often target resource companies when looking for gains. Recent numbers back up that decision — data from the Australian Bureau of Statistics shows that earnings from the mining industry grew 32.7 percent in the 2022 fiscal year, reflecting an increase of AU$54.3 billion.
That said, mining is just one of many ways to invest in Australia — beyond the materials sector, the nation is home to companies active in financials, information technology, healthcare and more. Read on for a look at how beginners can approach investing in the country, including how to buy stocks and which sectors may offer the most opportunity.
What is the ASX?
The Sydney-based Australian Securities Exchange (ASX) is the primary stock exchange in Australia. It acts as a market operator, clearing house and payments facilitator, allowing for the trading of a wide variety of securities, including shares, bonds, futures, options, exchange-traded funds, index derivatives and listed investment companies.
Of the over 2,750 ASX-listed companies, more than 40 percent are listed in the basic materials and energy sectors. Other large components are financials, information technology, healthcare, consumer discretionary and communication services.
Aside from homegrown Australian players, there are more than 245 foreign companies trading on the ASX, including 61 from New Zealand and 47 from the US. Companies from Canada, Singapore, Israel and the UK also trade on the ASX.
How to invest on the ASX?
The ASX provides a handy explanation for getting started on its website, and the first step for investors who want to purchase shares of a company is to get set up with a broker or a stock trading app. New market participants may want to work with a broker who can provide advice, while more experienced investors may be comfortable making independent decisions.
Due diligence efforts are key before investing in any stock, and public companies operating in Australia are bound by rigid legal frameworks that require high levels of transparency. Statistics on operational performance and information on company finances are easily accessible through individual company websites.
Can you buy ASX stocks directly without a broker?
According to the ASX website, "ASX-quoted products are traded electronically and can only be bought and sold through an ASX participant broker." The exchange notes that two sorts of brokers are available: those that provide advice, like a full-service organisation, and those that give no advice and simply do what the investor asks of them.
Tools to find authorised brokers are available on the ASX website, and investors also have the option of using apps or online platforms to trade stocks. Each individual must decide what approach will best serve their goals.
Can you invest in Australia as a foreigner?
To put money into ASX stocks, investors outside Australia may first want to see if the company they are interested has a listing in their country of origin. If that is not the case, and the investor wants to buy or sell securities directly on the ASX, they will need to find a broker who is authorised to trade on the exchange.
Which investments have the best returns in Australia?
Moneysmart, an organisation run by Australia's federal government, outlines on its website the different types of investments available in the country, along with their average risk, return and time frame.
Cash and fixed-interest investments fall into the defensive category, and while they come with few risks they also offer low returns at just 3 to 4 percent per year. Property, shares and alternative investments are classified as growth investments. Over the last decade, property and shares have had average annual returns of 6.3 and 6.5 percent, respectively, but they also come with higher risks. Alternative investments, including private equity and commodities, provide varying returns and are considered risky.
It's worth noting that both returns and losses can come in much higher and lower than those averages, especially when it comes to individual stocks. That is why many experts recommend portfolio diversification.
Who is in the ASX top 20?
The S&P/ASX 20 (INDEXASX:XTL) is an index made up of the 20 largest ASX-listed stocks by market cap.
Out of all S&P's Australian indices it is the most narrow in focus, and it puts an emphasis on liquidity and investability. Launched on April 3, 2000, the index is rebalanced on a quarterly basis.
Companies in the financial and materials sectors account for large portions of the index, with the former coming in at 34.8 percent and the latter accounting for 25.3 percent. The five biggest companies in the index as of June 2023 were Newcrest Mining (ASX:NCM,TSX:NCM,OTC Pink:NCMGF), Santos (ASX:STO,OTC Pink:STOSF), Coles Group (ASX:COL,OTC Pink:CLEGF), Aristocrat Leisure (ASX:ALL,OTC Pink:ARLUF) and Wisetech Global (ASX:WTC,OTC Pink:WTCHF).
This is an updated version of an article first published by the Investing News Network in 2019.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
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