Australians are whingeing - but their prospects looks bright
If Tony Abbott can tackle Dutch disease Down Under then Aussie shares are worth a gander
SOMETIMES one can only wonder at the hypocrisy of Australians. They label us "whingeing Poms" yet, despite lapping up some of the best economic conditions on the planet in recent years, all we ever seem to hear from them is belly-aching.
Everyone knows that Australia had a good financial crisis: it was one of the few "rich world" economies to emerge from the global recession unscathed, thanks in part to its low public debt. And it still retains its AAA credit rating. But, actually, the golden run in the Land of Oz has extended a lot longer than that.
Australia may no longer be chalking up records in the swimming pool, but it has been smashing them financially: as the economist Ross Garnaut points out, since 1990-91 Australians "have enjoyed the longer period of economic expansion unbroken by recession of any developed country ever". Given that extraordinary achievement, the national mood seems remarkably gloomy.
What has been freaking Aussies out is the unbalanced nature of their growth. The big fear is that they've succumbed to what economists call "Dutch disease": when a natural resources boom takes hold so tightly that it risks hollowing out the rest of the economy, leaving it vulnerable to the possibility of a massive bust. (The term derives from the decline in the Dutch manufacturing sector in the 1960s, after the discovery of a major natural gas field.)
Check out the stats, and you can see why they're worried. Australia has boomed on the back of voracious demand for its iron ore, coal and aluminium from industrialising Asian neighbours: especially China, which now accounts for 40per cent of all Australian exports. Over the past decade, the mining industry has doubled its share of the national output. That's a lot of eggs to have in one basket – particularly when the basket shows signs of fraying.
Sentiment in Australia has been yo-yoing all year in line with anxieties about slowing Chinese growth, or the possibility of a "hard landing" as the Middle Kingdom makes the transition from an investment-led economy to one driven by consumers. Matters haven't been helped by the movement of the Aussie dollar, which surged 44 per cent between the end of 2008 and May 2012, crucifying other sectors like Australia's manufacturers and its tourism industry.
Right now everyone is much more upbeat about China where improving production data suggest that the threat of the hard-landing is receding. Indeed, the talk in Sydney is that the new PM, Tony Abbott, has caught a rising tide.
Abbott argues persuasively enough that the fears of a resources bust were over-egged: barring a severe economic crisis, there should continue to be robust demand for Australia's commodities – even if it doesn't regain the explosive levels of recent years. But the brush with fear has convinced many Australians of the dangers of a close embrace with a giant panda, and the pressure is on to re-invent Australia's two-speed economy.
The weakening currency – down 15 per cent since April – will help. So, too, will the encouraging noises that Abbott has been making about cutting "corporate burdens". He's also promising to be the "infrastructure prime minister".
So should you back the Mad Monk? Views remain very mixed. Although business confidence is up, some commentators are sticking to a gloomy line – echoing Garnaut who warns that what he calls "the Australian great complacency" is coming to an end.
Others are notably bullish. For instance, Jason Pidcock of Newton Investment argues that Australia's benchmark S&P/ASX 200 index offers a much more diverse equities market than many investors realise.
Seen from the very long-term, Australia's prospects do look bright – just ask the Chinese. One Australian CEO cites a conversation with a Chinese partner who was bewildered by the self-doubt. "We've done our numbers", he said, "and by 2050 you will be the richest nation per capita in the world. You can feed yourself, you have abundant energy resources, and an educated population which means you will be able to innovate." Not much there to whinge about.
If you're persuaded that Australia's best days are far from over, you can get general exposure through one of the main Asia Pacific funds, such as Aberdeen. Alternatively, iShares has an exchange traded fund (ETF) which tracks the Australian index. Improving confidence has helped shares regain their spring heights. So buy on the dips. ·