With all eyes focused on Europe, news that Australia has slipped down the rankings in global competitiveness barely rated a mention.
The IMD World Competitiveness Yearbook recently reported that Australia had dropped six places to fifteenth in its rankings. The survey rates countries on their ability to manage economic resources to lift prosperity.
Should we be concerned? If we were to simply look at last week’s exceptional GDP numbers, perhaps not. But while the numbers were impressive, the majority of growth did emanate from Western Australia and the Northern Territory.
Outside of mining, many sectors of the economy continue to struggle. It is also true that Australia should not rely exclusively on the resources boom to increase the size of the economy.
The need for significant structural change therefore remains a priority and a challenge. Many companies are feeling the strain of red tape, a general skills shortage and the increasing costs of doing business. Even the large miners are struggling as they look to defer large projects.
In its recent report, Pipeline or Pipe Dream? Securing Australia’s Investment Future, the Business Council of Australia (BCA) notes the current threats and long-term opportunities for the Australian economy.
With over $920 billion in committed and prospective investment projects in Australia’s pipeline, the economy cannot afford high costs and poor delivery. An uncompetitive economy will see the opportunity frittered away.
The opportunity of course is being driven by a powerful secular trend – the rise of Asia. Both the BCA and the recent government white paper, Australia in the Asian Century, recognise the enormous benefits that may accrue to the domestic economy by supplying the region with resources and services.
Put your money where your mouth is
However, there remains a large disconnect between where Australia trades and does business, and where we choose to invest. Just as the economy and companies need to adjust to changing conditions, investors should also look to areas where they can benefit from this wealth-creation effect.
To be sure, strong growth does not always translate into strong market returns, but this should not preclude investors from considering an exposure to Asian equities.
Outside Japan, the small and mid-cap spaces offer investors some compelling investments, including consumption-oriented sectors.
While Australian retailers and media companies are currently finding it tough going, insights can be gleaned from the successful business models of their Asian peers and applied at different stages in their lifecycles.
The growing middle class in Asia offers both economic and investment opportunities. While much of our future economic success will be determined by structural change and improved competitiveness, investment returns also have the potential to climb up the rankings. Australians have historically shown a reticence to invest in the region.
As we adjust to the Asian century, perhaps it’s time to reconsider investment allocation.
Patrick Noble is a senior investment strategist at Zurich Investments.
