Wondering about Australia’s economic prospects? You needn’t. Sure, the talk of the town is that the country is heading into a downturn, with the RBA set to downgrade growth forecasts yet again (apparently). That’s not to forget all the wailing and grinding of teeth over the huge hit to national incomes and the inevitable drop in our standard of living.
Ask yourself one question though: if the outlook is so bad, if the outlook is truly that terrible, what’s Warren Buffett’s interest? The man is an investing legend and he clearly sees value in the country. Even in our much maligned banks.
Money talks and punters have to take it seriously when Berkshire Hathaway sees value in the country. “Be fearful when others are greedy and greedy when others are fearful,” he says. Well, there is certainly a lot of fear in Australia, which is perhaps the best value signal out there.
Warren Buffett isn’t the only one with his eye on Australia though. German retail giant Lidl is also reportedly working on plans to set up shop here, yet one more (huge) vote of confidence in the Australian market. All this follows Japan Post’s $8 billion decision to buy Toll Holdings some months ago.
Looking at the broader picture, foreign investment in Australia has increased by nearly $90bn over the last year or so to just under $1 trillion. That figure includes direct equity investment and portfolio investment, each component accounting for about half the total.
In terms of growth, you’re looking at about 40 per cent from direct investment and 60 per cent via portfolio investment. Either way, these are some of the biggest numbers we’ve seen since the GFC and certainly the biggest since a flurry of activity toward the end of 2009 and early 2010.
It’d be far too cute, not to mention completely short-sighted, to put this increased interest down to exchange rate movements. Investments like this aren’t made on the basis of short-term currency fluctuations. In any case, even if they were, the message that foreign investors would be sending is that the Aussie dollar is oversold. It is, but the weak currency isn’t the reason for increased foreign interest.
Instead, foreign investors see value where our own politicians and policymakers see none. It’s dark times ahead and so our nation’s economists and commentators obsess about the extent of the downturn and busy themselves with ways to protect government revenues (higher taxes on the middle classes).
Meanwhile, foreign investors are busy scoping out the next deal. It’s a world of difference.
While many lament this investment and blame foreign investors, especially Chinese investors, for buying up all our residential property and squeezing first-home-buying Gen Ys out of any chance of buying a pad in Point Piper, the reality is far from that.
For a start, most foreign investment into Australia still comes from the traditional sources: the US, UK and Japan. Asia, outside of China, is also a good source of investment. Especially countries like Singapore and Malaysia, which appear to have a particular fondness for Australia’s luxury hotels.
So, we’ve got the Japanese buying big Aussie logistics, the Americans investing into our insurance companies and looking to buy up some banks. The Chinese want everything they can get their hands on and the Europeans are investing in in everything from our retail sector to advanced manufacturing.
None of this is to say that foreign investment is a bad thing. It isn’t. It’s a great thing and the strong interest from abroad is one very good reason to be bullish on the country’s prospects. It’s just a pity that our own policymakers and commentators can’t see the same value in Australia as foreigners do.