International Investing Made Easy
Offshore Investing Made Easy
By David Zammit
Australian investors have embraced global diversification in recent years as a means of accessing trends in technology and medicine, diversifying portfolio risk and achieving better returns. And it has raised awareness of the shortfall in the Australian banking system for handling offshore transactions.
Australian’s are avid travelers and now investors across the globe. The banking industry has responded slowly to the increase in foreign exchange transactions, which is evidenced by the $1 billion in foreign transaction fees Australian’s paid in 2017.
It highlights the need for investors to ensure they have a flexible, efficient and cost effective cash management account that can transact in a variety of major currencies.
The need for this sort of flexibility was evidenced by the increased use of foreign exchange we witnessed in our client base. Just two years ago our investment clients split their assets at a ratio of 36 per cent international and 64 per cent domestic. Today, this has reversed, with portfolios averaging out at 61 per cent international and 39 per cent domestic investments.
The desire to access opportunities beyond Australia’s investment universe is also clearly evident. Since 2016 the percentage of clients holding international tech investments has grown from 2 per cent to 22 per cent, while the number holding big four bank investments has fallen from 79 per cent to 31 per cent.
All this diversification has impacted the number of foreign exchange transactions, with the number of transactions handled by Citi in April up 50 per cent on the previous year. Add international travel into the mix and Australia now ranks 10th highest in the world for transferring funds offshore.
From an investment perspective there are many benefits of adding currency to a portfolio. Currency exposures have a low correlation to traditional asset classes, offer around the clock execution and provide easy access to emerging market exposure.
At Citi we see the trend to diversifying into global markets as positive, particularly as Australia faces several challenges to generating returns this year. These headwinds include a troubled housing market, an equity market lagging behind offshore exchanges, low cash rate and a bond market that looks more attractive in Europe and emerging markets.
Admittedly, in the past managing offshore investments was not always easy. However, there are now many options available to manage international portfolios, and the ability to gain exposure to global trends in technology and areas like medical research has been greatly enhanced.
David is Citi’s Head of Banking and Wealth Management Distribution
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