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Australian shares have their merits

By Peter V O'Brien

Friday 14th March 2003

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Investment diversification, involvement in a bigger economy and bigger companies, risk spread and currency movements have been touted as reasons for taking positions in Australian companies.

All reasons have merit but also have downside risks. At least one merit is shown in Table I, which lists the top 20 Australian companies by market capitalisation.

Telecom is New Zealand's biggest company by market capitalisation. Its capitalisation in Australian dollar would rank it 14th on the Australian market.

Some brokers are enthusiastic about Australian equity investment, given the current exchange rate. There is a view among some commentators that is better to buy Australian shares using the Australian currency than acquiring the stock in New Zealand in our dollars.

Assuming individuals can live with potential risks (and shy off managed funds), Australia offers a wider range of investment options in diverse industries than New Zealand. Companies in the tables are only a small sample of the Australian exchange, although they are the biggest.

Many other large groups are available with market capitalisations much bigger than most New Zealand-based companies. They are involved in sectors either unknown here or, if known, operating only on a small scale. This has particular relevance for people interested in natural resource stocks.

New Zealand has minimal mineral and oil production but several Australian mining companies, including those in the tables, hold their own on the world scene.

Investors have to weigh up the general market risk factor, apart from currency. Attractive currency movements are small consolation if Australian investment produce capital losses in a declining market.

The dividend tax deal arranged between the New Zealand and Australian governments last month will benefit New Zealand shareholders with Australian holdings. That should make transtasman investment more attractive.

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