Source: Fidelity International, 30 June 2019, reflecting data for second-half 2019. All returns in Australian currency These estimates are based on Fidelity International’s proprietary modelling for illustrative purposes only and reflect the views of its investment professionals. Inflation is an average of projections of Fidelity’s investment professionals, based on CPI.
Hunt for yield
Australians are now in the same boat as many international investors in their search for new investment opportunities.
Not too long ago, Australians could hold defensive assets such as cash and government bonds, and the interest earned would be enough to protect their wealth from the eroding effects of inflation. Today, if an investor wants to generate superior returns they must look further afield than traditional investments such as term deposits and Australian equities.
Australian equities are a popular choice for investors, currently making up the largest share (38 per cent) of self-managed superannuation funds (SMSFs) under management. But by limiting your portfolio to domestic shares you are missing exposure to a huge number of the world’s most successful companies. Global equities can also offer diversification and significant returns from regions and industries positioned for growth.
An allocation to both Australian and global equities can bring investors a broader choice of investment opportunities. Importantly, this blended approach to equities can also reduce volatility and enhance potential portfolio returns. Because assets do not always have a strong correlation to each other, global and Australian equities can both play an important role in diversifying the overall risk of the portfolio.
Looking further afield, emerging markets have been growing rapidly in recent years and now represent nearly 60 per cent of global growth and more than 50 per cent of global GDP. Emerging and developing Asia alone is expected to be larger than all the advanced economies combined by 2022.
Once dominated by agriculture and cheap manufacturing, emerging market countries are now home to some of the world’s fastest-growing economies and most innovative companies.
Chart 3: Asia will be larger than all of the developed markets around 2022