Inside a World of Finance, Economics, and Investing: Investing in Australia

Australia is becoming an increasingly attractive investment. Their economy has been boosted in part through rising commodity prices, allowing Australia to reap higher export earnings through shipments of iron ore, coal, and gold. Their economy was hardly impacted by the credit crisis and the Reserve Bank of Australia was one of the first major central banks to raise interest rates, which currently stand at 3.75%.

Australia has also benefited from the rapid growth of China, who is their second largest export-partner only behind Japan, according to the CIA World Factbook. Other major export-partners include South Korea and India. Perhaps the most attractive aspect of investing in Australia, as opposed to China, is the lower political risk factor and the floating exchange rate. The actions of the Chinese government are largely unpredictable and cast a further cloud of risk over Chinese-related investments. Further, the Chinese yuan is tightly pegged to the value of the USD, while the Australian dollar is a floating currency and has appreciated rapidly in recent years. A rising Australian currency will further add to your investment returns when they get reported back to the weaker USD. Chinese investments cannot claim the same advantage.

To get exposure to Australia, look at the ETF, EWA, whose 6-month chart is shown below.