'The Lucky Country’, by Donald Horne, is one of Australia’s most iconic books. However, despite being a cult classic, the book — which claims that Australians lack curiosity and that the country has only succeeded due to luck — is not really an accurate assessment of the land down under.
The 13th largest economy by GDP in the world today, Australia is a success case. But this success is not down to luck.
At the heart of Australia’s success lies its highly skilled labour force — which is one of the most educated, multicultural, and multilingual in the world. This labour force has boosted productivity substantially over time, and has helped the country build up significant wealth. According to the Credit Suisse Global Wealth Report, in 2020, Australia had the highest median level of wealth (USD $238,070 per adult) out of any developed country.
A strong legal framework and transparent regulations have been other key drivers of Australia’s success. A low-risk, stable country, it consistently ranks well in terms of political stability. This has helped it attract direct foreign investment. It has also been helped by free-trade agreements with many other countries in the region, and by high demand for its natural resources (iron ore, natural gas, coal, etc.) from China.
As a result of these features, Australia has generated consistent growth in recent decades. Before the COVID-19 pandemic hammered the global economy in 2020, the country had registered 29 years of consecutive GDP growth. And in March 2017, it took the record for the longest run of uninterrupted GDP growth in the developed world. Through drought, flood, the dot-com crash, and even the Global Financial Crisis (GFC) of 2008/2009, Australia has continued to grow. As for how it escaped the GFC, it was down to a combination of its banking industry being in good shape due to regulation, a fast response by the central bank to help the Australian population, and a strong performance by the country’s mining companies during the crisis. Again, it wasn’t down to luck.
Of course, like every other country, Australia saw its growth deteriorate during the pandemic. The second quarter of 2020 saw the biggest fall in GDP since records began back in 1959. However, the country has made a solid recovery from Covid.
Following a strong rebound in the final quarter of 2021, the economy is now bigger than it was before the pandemic.
For long-term investors, the Australian stock market has a lot to offer. A diversified market, Australia is home to world-class companies across sectors such as mining, banking, healthcare, and software. This means that the region can potentially help investors diversify their portfolios.
And now could be a good time to take a closer look at the land “down under.” With the macro environment (high inflation, rising interest rates, surging commodity prices, etc.) currently favouring banks and miners, the Aussie market could be set for a period of strength.
Those interested in investing in Australia may want to check out eToro’s AussieEconomy Smart Portfolio. Other geography-based Smart Portfolios that can increase portfolio diversity in different regions and sectors include NordicEconomy, LatamEconomy, and EuropeEconomy.
Right now, inflation is a hot topic as we’re all paying more for our goods and services. In the US, inflation hit 9.1% in June, its highest rate since 1981. Meanwhile, in the UK, inflation just hit 10.1%, and some experts are tipping it to climb much higher in the months ahead on the back of soaring gas prices.
Among the types of investments that can potentially provide protection in this kind of inflationary environment are real estate investment trusts (REITs) — publicly traded investment companies that own or finance real estate portfolios.
When inflation is high, real estate landlords can raise their rents to cover rising costs. Sometimes, long-term leases are even tied to inflation, meaning that rents increase automatically as inflation rises. Higher rental cash flows can lead to higher dividends for investors as REITs typically have to pay out the bulk of their income to investors as dividends.
Meanwhile, real estate values often increase when inflation is hot. This is because higher prices for labour, materials, and land make construction less economically viable, reducing real estate supply. Higher real estate values can help boost the share price of real estate investment trusts. So, ultimately, investors in REITs can potentially benefit from both capital gains and rising dividends when inflation is high.
It’s worth noting that in the 1970s, when inflation was very high, real estate investment trusts performed well. In fact, they were actually the second-best-performing asset after energy stocks. This suggests that REITs could play a valuable role in investor portfolios in the current environment.
Another thing going for REITs right now is the Inflation Reduction Act, which was recently signed into law by US President Joe Biden. This is set to provide a number of benefits for businesses that operate in the real estate space, including tax deductions for energy efficient commercial buildings, tax credits for large multifamily residential buildings, and clean energy incentives for construction beginning after 2024.
Those interested in investing in REITs may want to check out eToro’s RealEstateTrusts Smart Portfolio. This provides access to a range of top REITs including those that own and manage residential, office, warehouse, healthcare, and storage real estate.