Choosing global or Australian shares

When investing in shares, deciding whether to go global or stay local can be difficult. How long an investment is made for and in which sector are key deciding factors when choosing either global or Australian shares.

Buying global shares

There are a few disadvantages to the Australian share market. Firstly, it’s only 2.6 percent of the total share market world wide, so the scope for investment is limited, as is the choice of available investment sectors.

Natural resources

Australia does very well in natural resources, and this is likely to continue as the Chinese and Indian economies continue to buy up Australia’s resources in bulk. As energy security issues intensify globally, Australia’s natural resources market looks set to enjoy continued growth.

However, there is also an over representation of this sector and this can lead to trouble down the track for investors. Additionally, other sectors, such as the technology market, are severely under represented in Australia. (Typically, the nation fails to commercialise many of its innovations).

Carbon trading

Investing in global shares exposes investors to innovative technologies and a very important new trading option: carbon. The world (except backward America) is now on board with the Kyoto Protocol, so the emphasis is shifting to new technologies and business opportunities including the global carbon trading scheme. 

Japanese trading firms have been some of the largest investors in carbon trading schemes and are expected to make quite a tidy sum once the 2012 deadline of the Protocol comes into effect.

Although there is talk of Australia starting its own trading scheme, it will more than likely pale in comparison. The United Nations Convention on Climate Change (UNCCC) estimates that investments in carbon trading schemes will reach US$100 billion a year.

Australian shares: short-term gains?

Most people invest for shorter periods of time, so for a three to five year investment Australian shares a highly recommended.

While global shares allow much more diversification – an important security issue for any stock investor – Australian shares returned an average 14.2 percent annually in the last seven years. For the last fours years (to 2007), returns have been an average of 20 percent per annum. This means that someone investing just $3000 in 2003 would have $5,000 in 2007. In comparison, global shares returned only two percent per annum.

There’s still a strong argument for buying Australian shares in the short-term, but as with any stock investment, diversification is the key. For longer-term investments, global shares could be promising. For smaller investments over a shorter time, a predominantly Australian portfolio could still see some high returns. If you are considering investing, however, always seek professional advice and do your due diligence before making your purchase. Past performance may not be indicative of future results.

This information is provided for your education only and does not take into account your personal circumstances.