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In the 2019 federal election, Labor’s proposal to abolish cash refunds for excess franking credits went down like a lead balloon. So, will the $3 million cap proposal see Labor revisit history?
Global stocks high risk? You’re dreaming!
Australia remains somewhat unique in offering every member of the population the ability to control the investment of their life savings. While not perfect, it clearly remains one of the preferred options, particularly for retirees.
You would naturally expect, given the explosion in accessibility and falling costs, that global equities would be as prevalent in investment portfolios as domestic equities. Yet despite the massive strides in technology, there remains a large cohort of DIY investors who continue to view global stocks as being higher-risk than their ASX-listed counterparts.
There are many reasons for this view, with most unable to be overcome even through facts. For instance, there is a prevailing belief that overseas shares are significantly more expensive, whether due to headlines about all-time highs, or the larger cohort of technology-focused companies.
Then there is the old-fashioned ‘currency risk’ concern that any investment overseas is exposed to changes in currency. Add to this the expected difficulty in completing paperwork and dealing with different stockbrokers to purchase global stocks, and ultimately the perceived additional cost.
Interestingly, every one of these concerns has been overcome, with Apple Inc. (NYSE:AAPL) the near-perfect answer. The trigger for this article was news that Apple recently reached a market capitalisation or valuation of US$3 trillion. This made it the most valuable company in the world and among the largest in history.
As a means of comparison, the S&P/ASX200 has a combined market capitalisation, that is the value of all 200 companies added together, of A$1.6 trillion, or US$1.16 trillion. So Apple’s value is close to three times the size of the entire Australian sharemarket, with our largest company, BHP, valued at ‘just’ $223 billion.
The comparison doesn’t end there, however, with Apple’s market cap of US$750 billion in 2019 growing to exceed the value of the much larger FTSE100, French CAC 40 and German DAX indices in two short years. Despite size being an indicator of quality in many parts of our lives, be that banking, groceries or cars, we seem to forget about it when it comes to shares.
But Apple is overvalued, isn’t it? By traditional measures, it may well be, given that it is currently trading on an historical price/earnings (P/E) multiple of 30 times. But the question is, compared to what? For instance, Woolworths (ASX: WOW) trades on a P/E of 29 times, despite revenue growth below 10 per cent compared to Apple, which is growing at more than 30 per cent per quarter. Similarly, Seek Limited (ASX: SEK) one of our top technology companies, trades on a multiple exceeding 100 times.
Ease of access and trading is clearly no longer an issue, as highlighted by the massive spike in millennial investors entering the market in 2020 and 2021. New platforms, from Superhero to Stake, offer cheap trading and global access, but so does a broadening cohort of traditional brokers and platforms at limited cost.
Currency risk is about the only thing you can’t avoid investing into global stocks, yet many of Australia’s biggest companies are potentially more exposed to currency anyway. For instance, portfolio stalwarts like BHP (ASX: BHP), CSL (ASX: CSL) and Cochlear (ASX: COH) generate the majority of their earnings offshore and sell volatile, commodity-type products.
And the best answer of course, is that “we have enough good companies here,” with which I must respectfully disagree. While Australia bats at about our weight in terms of being the home of around five to six true global leaders, there is no comparison to the depth and breadth of quality listed on US, Asian and European markets.
A famous investor once said, “invest in what you know and use yourself,” and given Apple’s market share in Australia was close to 60 per cent in 2021, we seem to know this product pretty well. Potentially better than a company producing and shipping base commodities all over the world.
