by Jeff Reeves | August 13, 2012 12:28 pm
There’s a lot of focus on ugly Chinese data coming out right now, with fear of the People’s Republic slowing down markedly as a result. There’s also continued talk about the eurozone crisis and another recession here at home.
So, where can investors park their cash in these tough times? Well, Australia provides an interesting opportunity.
Down Under, things are looking up. GDP surged about 4% in the first quarter, according to June reports, as the nation continues to capitalize on its connections to emerging Asian markets and ships out increasingly large portions of its abundant natural resources.
But it wasn’t just brisk mining and drilling activity supporting growth. Yes, Australia holds huge reserves of coal, iron ore, copper, gold, natural gas and uranium (among other commodities). But it was an unexpected increase in household spending that also juiced numbers. The Australian consumer is doing pretty well, showing a bit more swagger than counterparts in the rest of the world. Consumer spending was up 1.6% on the quarter.
Of course, things aren’t perfect. The Reserve Bank of Australia recently lowered its benchmark interest rate to 3.5% — the lowest in almost three years — because of “moderate domestic growth” and a “weaker and more uncertain international environment.” But considering the alternatives, investors would be wise to check out Australian opportunities.
Take Westpac Banking (NYSE:WBK), a Sydney-based financial stock with a $75 billion market cap. It pays a whopping 6.5% yield, is up 16% year-to-date and has a five-year return in the double digits — while major U.S. financials like Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), JP Morgan (NYSE:JPM) and Citigroup (NYSE:C) are in the red for the same period.
If you’re looking for a broader play on Australia, the iShares MSCI Australia Index Fund ETF (NYSE:EWA) has outperformed the Dow Jones year-to-date, thanks to being overweight in the nation’s financial stocks including Westpac, Australia and New Zealand Banking Group (PINK:ANZBY) and the Commonwealth Bank of Australia (PINK:CBAUY). The fund also pays 4.7% in dividends as of the latest distribution.
Of course, not all ADRs based in Australia are doing so hot, considering the focus on natural resources and some of the pricing pressure these materials stocks have faced. Top companies Down Under include diversified mining and energy company BHP Billiton (NYSE:BHP), which is off 2% so far this year, thanks to soft prices for coal and steel. Also battered is Alumina Limited (NYSE:AWC), a mid-cap aluminum manufacturer that has suffered along with big shots Alcoa (NYSE:AA) and Norway’s Norsk Hydro (PINK:NHYDY) as aluminum prices have slumped.
However, as I pointed out in a recent column about cyclical materials stocks, it may be time for investors to consider staking out a position in some of these metal giants in order to play a longer-term recovery. After all, BHP is down 25% since the start of 2011, and Alumina is off over 65%. Both have been cutting costs and adjusting to the “new normal” in the current economic environment. They could see big gains in 2013 if and when demand for base metals picks up.
The bottom line is that there aren’t many places to put your cash right now. If you’re looking for global equities that pay a decent dividend, consider some Australian plays including the big banks of Australia or the diversified iShares ETF that pays a nice 4.7% yield.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.
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