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Australian Shares vs International Shares: A Comparative Analysis

Introduction to Australian shares vs international shares

When it comes to investing, the stock market can seem overwhelming for beginners. But millions of people around the world participate in the buying and selling of stocks and shares daily. Its impact on the global economy and individual wealth cannot be overstated. In this blog post, I’m going to talk you through the differences between Australian shares vs international shares.

This blog will helping you build your understanding of the markets as you begin your investing journey but should be treated as informational only. I do not offer financial advise.

Intro to the Stock Market

You may have seen the Wolf of Wall Street and think you know everything there is to know about the stock market. But as with most things, it isn’t always how it seems in movies.

Yes you have the hussle and bussle and phones ringing and people making and losing large amounts of money all the time but at the end of it all, the stock market is just somewhere for people to buy and sell small amounts of ownership of a business.

The stock market is literally a platform by which companies can offer for sale a small “share” in their business that anyone can buy. This person who has then invested in the business would then be entitled to a “share” of any of the business’ future profits, should they make any. This is called a dividend.

The stock market is a key driver of economic growth as it allows for business investment and private investment. In other words, business’ benefit from increased money in the company and can use this to grow the business and private investors get more money in the long term as business’ grow and hopefully pay them back + profit over time. All one big happy circle… as long as the business actually does continue to grow overtime and make more money. 

The stock market facilitates international trade by allowing businesses from different countries to list their shares on foreign exchanges. This means it’s easier than ever for people to invest in business’ all over the world and extend their portfolio past what is available in their own country.

Australian Shares vs International Shares

Australian shares are stocks listed on the Australian Securities Exchange (ASX). There are companies across all of Australia and every industry available on the ASX.

As an Australian, choosing to invest in Aussie shares, you are supporting local businesses. But by investing in international shares you have the opportunity to invest in a wider range of markets, therefore diversifying your portfolio.

Other exchanges include the New York Stock Exchange (NYSE) and NASDAQ in the US or markets in Europe and Asia. 

In this blog, I will chat about the advantages of investing in both Australian and international shares. By having a better understanding of their differences and performance metrics, you can make more informed decisions when thinking about your investment portfolios.

Australian Shares

Australian shares means investments made in companies listed on the Australian Securities Exchange (ASX). These shares represent a small fraction of ownership in an Australian company, giving investors the opportunity to benefit from any potential growth and profitability. 

As with any investment, the value of Australian shares fluctuates based on various factors, including company performance, market sentiment, and economic conditions. 

Investing in Australian shares allows individuals to support local businesses and contribute to the growth of the Aussie domestic economy. As you would be investing in Australian shares you don’t have to worry about currency exchange risks associated with foreign investments as you will only be trading in AUD.

Key players in the Australian stock market

The Australian stock market is run by the ASX and this is where Australian companies list their shares for public trading. 

There are many major companies listed on the ASX include BHP Group, Commonwealth Bank, CSL Limited, Woolworths Group, and Telstra Corporation.

Financial institutions such as banks and brokerage firms can play a crucial role in facilitating trading activities within the ASX. For example, Commonwealth Bank of Australia, Westpac Banking Corporation, ANZ Banking Group, National Australia Bank, and Macquarie Group all offer programmes to try and encourage you to invest your money.

Advantages of investing in Australian shares

Investing in Australian shares offers several advantages:

• You are supporting local businesses and contributing to local economic growth.

• As you have a better understanding of the domestic market and its companies, you can use your own insights to make investment decisions.

• Many Australian companies have a history of paying regular dividends to their shareholders.  Australia also has a unique system known as franking credits or imputation credits. These credits represent taxes already paid by the company on its profits, which can be used to offset an individual’s tax liability.

• Investing in Australian shares reduces the risk associated with currency fluctuations as you will always be using Australian dollars.

International Shares

Investing in international shares allows you to purchase stocks in companies located outside of your home country. These stocks are traded on major global stock exchanges like the New York Stock Exchange (NYSE), NASDAQ, London Stock Exchange (LSE), and Tokyo Stock Exchange (TSE). 

International shares offer  opportunities to diversify portfolios beyond your domestic market. They come in various forms, such as American Depositary Receipts (ADRs) or Global Depositary Receipts (GDRs). 

These represent ownership in foreign companies, enabling investors to trade them on local exchanges without dealing with foreign regulations. International shares can be denominated in different currencies, meaning you must be aware of the potential for currency gains or losses.

Major Global Stock Exchanges

The global stock exchange world is full of marketplaces that influence the world’s financial ecosystem.

The New York Stock exchange is one of the most iconic exchanges internationally – Have you ever seen the Wolf of Wall Street?! 

The NASDAQ exchange is different from traditional stock exchanges as it primarily lists technology-oriented companies. 

This exchange hosts some of the biggest names in technology—think Apple, Microsoft, Amazon—making it attractive for tech-savvy investors seeking growth opportunities. Other major global stock exchanges include the LSE in London and the TSE in Tokyo. 

Investing in international shares provides access to these renowned platforms and a range of different companies.

Advantages of Investing in International Shares

One key advantage of investing internationally is diversification across different economies and industries. By holding a mix of domestic and international shares, you can mitigate risk by not relying solely on one region’s economic performance. 

A diversified portfolio can help smooth out any bumps experienced in individual markets, reducing overall volatility.

Investing internationally also offers the chance to tap into the success of global giants like Apple, Amazon, and Google. Investing in their growth of multinational companies like this can enhance investment returns and contribute to a well-rounded portfolio. 

International shares provide exposure to emerging markets with high growth potential – such as China, India, and Brazil.

Australian shares vs international shares a comparative guide

Performance Comparison: Australian Shares vs International Shares

Australian Share Market Performance

When it comes to evaluating the performance of Australian shares, analysts often turn to the ASX indices for a comprehensive overview. One prominent benchmark is the ASX200, which tracks the performance of 200 of the largest companies listed on the Australian Securities Exchange (ASX).  

 The ASX200 represents a diverse range of sectors, including mining and finance, two key industries in the Australian economy. 

Mining companies have played a significant role in driving Australia’s economic growth due to its rich mineral resources. On the other hand, finance companies contribute heavily to the overall market capitalization and can sway market fluctuations.

The Mining Sector:

The performance analysis reveals that mining stocks have experienced volatility due to commodity price fluctuations. During periods of high global demand for resources like iron ore and coal, mining shares tend to perform strongly. 

However, economic downturns or reduced demand can lead to significant declines in their value. Investors should closely monitor global trends and supply-demand dynamics when considering investments in this sector.

The Finance Sector:

The finance sector has been a major contributor to the overall performance of Australian shares. Big banks dominate this sector; they often offer stability with consistent dividends and potential for capital appreciation over time. 

However, regulatory changes or economic shocks can impact these stocks significantly. It is essential to stay informed about changes in regulations or interest rates that may affect financial institutions’ profitability. 

International Share Market Performance

To gain insights into international share market performance, many analysts compare it against global indices such as the S&P 500. This index tracks the performance of 500 large-cap U.S. companies and is widely recognised as a benchmark for the overall health of the American stock market. 

Comparing international shares against global indices provides a broader perspective on market trends and opportunities. It also highlights regional performances that exhibit unique characteristics influenced by economic factors and geopolitical events. 

Regional Performances:

The international share market encompasses various regions:

The United States, being the largest economy in the world, often leads in terms of innovation and technology stocks. 

Europe showcases a mix of developed economies with established industries like automotive and luxury goods, alongside emerging markets driven by technology and renewable energy.

Asia represents one of the fastest-growing regions globally, with countries such as China and India at the forefront of economic growth. 

Asian markets offer exposure to diverse sectors such as manufacturing, e-commerce, and healthcare.

When comparing International stocks, it is essential to consider country-specific risks like political stability or regulatory changes.

Understanding performance comparisons between Australian shares vs international shares requires an examination of both historical data and current trends. 

Diversification Benefits & Risks

When it comes to investing, diversification is vital to protect your portfolio from volatility. By investmenting across different countries and regions, you can minimise the impact of any single market’s ups and downs. 

This means that if one market experiences a downturn, others may remain stable or even grow, helping to balance out your overall returns. It’s like having multiple eggs in different baskets – if one basket gets dropped, you won’t lose all your eggs at once.

Economic Cycles

Economic cycles can be as unpredictable as the weather. However, by diversifying your investments internationally, you have the opportunity to capitalize on varying economic cycles. 

When some markets are booming, others may be experiencing a slowdown or recession. By monitoring global trends and allocating your investments accordingly, you can potentially benefit from the growth opportunities that arise in different corners of the world at different times. 

High-Growth Potential

One of the best advantages of international shares is access to high-growth markets that may not exist within your own borders. Emerging economies like China and India have experienced rapid economic expansion in recent years and offer significant potential for higher returns on investment. With international shares, you open up doors to potentially unlock substantial wealth opportunities beyond what may be available within domestic markets alone. 

Conclusion

Diversifying your investment portfolio by including both Australian shares and international shares can bring numerous benefits while mitigating risks. The opportunity to capitalize on varying economic cycles allows you to seize growth opportunities that arise in different parts of the world at different times. 

Additionally, exposure to high-growth markets through international shares expands your chances for potential higher returns. 

Make sure to conduct thorough research and seek advice from financial professionals before making any investment. This post is purely informational and should not be considered as financial advice. You should not underestimate the risks associated with investing in stocks and shares. 

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