Australia wins performance race as “a work horse, not a racehorse”

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Population growth, natural resources and corporate governance mean Australia’s post-COVID snapback will be stronger than that of many peers, says Fidelity International's Paul Taylor.

The veteran head of Fidelity’s Australian equity team recently discussed our macro environment in the context of a 120-year study, The Credit Suisse Global Investment Returns Yearbook 2020. The report found Australia’s average market return of 12% a year was the highest in the world.

“Someone once described Australia as a work horse, not a racehorse, and I think that’s a really good description,” Taylor says.

He notes that Australia’s fairly consistent growth rate of around 10 to 15% a year compares to some Asian markets that may see returns of 20, 50 or 100% in some year, but in other years will deliver negative results.

Taylor attributes Australia’s superior performance to

  • Population growth
  • Natural resources
  • Corporate governance.

On average, Australia’s population has grown by 2% a year since 1900 – about 5-times the OECD average – which makes it a structurally growing market.

“We’re always seen as an attractive place to work, study and live – and post-COVID, given the way we as a country we have handled it, that demand will only increase,” says Taylor.

Access to natural resources was another common trait of the top countries in the study.

“When you’re puling iron ore out of the ground at $20 a tonne, we’ve got a huge incentive to expand production when we’ve got iron ore prices at around $120,” Taylor says.

This compares extremely favourably to some other countries whose cost per tonne of production is around $100.

And Australia’s enviable track record of corporate governance also stands out, especially when viewed alongside our dividend imputation system. These franking credits provide a huge incentive for companies to pay out profits, which in turn increases corporate fiscal discipline.

“That money was burning a hole in the pockets of those firms that paid out no or very low dividends. They had no discipline about acquisitions, they were spending money as quickly as they could, making empire-building acquisitions and wasting the money,” Taylor says.

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