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20 October 2020

The Story of Economic Success Down Under…

Ben Staniforth, Research Analyst, Redmayne Bentley
 
If asked which country has been able to remain recession-free for nearly 30 years, including the 2007-09 financial crisis, very few would have picked Australia. The country has, however, alongside a very small number of others, managed to ensure that its economy continues to chug along, consistently growing since 1991 when it recorded two consecutive quarters of gross domestic product (GDP) decline. The Coronavirus pandemic has, however, dealt a blow to this stunning economic run with first and second quarter 2020 GDP growth at -0.26% and -7% respectively, sending the nation into its worst recession since 1960.
 
It has, however, fared much better than other similarly developed nations. The UK for example, one of the worst-hit economies during the COVID-19 pandemic, saw GDP declines of 21.46% in the second quarter of 2020, over triple that of its former colonial partner. Australia has benefited from its cosy relationship with China, which now accounts for over 32% of its exports and provides significant demand for its natural resources as the Asian economy continues its own impressive growth trajectory.
 
Despite its impressive resilience, UK and European investors have typically shunned Australia as an investment location, mainly due to access. Australasia as a continent is often considered too niche a location to invest in, meaning that Australian investment products are often bracketed into Asian funds which typically focus their efforts on East Asia, specifically China and Japan. As such, while pure-play Australian investment funds are a rarity in the UK, collective investments such as the Baillie Gifford Developed Asia Pacific Fund offer investors a relatively small, but not insignificant allocation towards Australian securities at 15%.
 
Those seeking income, however, may want to consider taking advantage of Australia’s abundance of high-dividend-paying mining stocks. While holding direct shares to pursue an attractive yield is often a risky strategy, funds such as the Fidelity Asian Dividend Fund have a long history of strong income payments and capital appreciation. The fund accounts Australian-based Evolution Mining as its ninth-largest investment, representing just over 3% of the portfolio, with its strong performance helping the portfolio produce a robust total return.
 
Please note that investments and income arising from them can fall as well as rise in value and you may lose some or all the amount you have invested. Past performance and forecasts are not reliable indicators of future results or performance. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the companies mentioned.
 
The Story of Economic Success Down Under…
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