How much Australia Exposure do you have?
In the chart below I graphed the performance of 4 prominent Asian stock market indexes -- Japan, Malaysia, Hong Kong, Singapore -- and Australia over a 5 year period. If I had taken a survey to see if investors thought that the Asian countries or Australia was a better market to invest in over the past 5 years, I would bet that most retail investors would put their money on Asia. Here is the list from worst to best:
- US - S&P 500 - 5.7% CAGR
- Japan - DJ Japan - 11.91% CAGR
- Malaysia - DJ Malaysia - 14.7% CAGR
- China - DJ Hong Kong - 15.8%
- Singapore - DJ Singapore - 19.2% CAGR
- Australia - DJ Australia - 23.3% CAGR
So what is the lesson here? Well, for starters proper asset allocation hopefully gave each of you exposure to these and other emerging markets in your portfolio. If you didn't have adequate exposure to this area your returns have probably lagged over the past 5 years. Today with companies like iShares offering more and more invidual country ETF's you can get more precise exposure to countries that are well positioned for growth over the next 5-10 years. Even though Australia (EWA), Singapore (EWS) and Malaysia (EWM) have all been hot for some time I believe that all three will continue to benefit from the explosive growth of China and India. The downside of course is the volatility. A Word of Caution: Country-specific ETF's are not for the faint of heart. Expect some sort of major emerging markets pullback in 2007 along the lines of that which we experienced in the summer of 2006. That pullback very well may be a good time to start developing a longer term emerging markets position.
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