How to Invest in Australian Stocks

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Australia’s stock market is called the Australian Securities Exchange (ASX). With a total market capitalization of approximately AUD $1.9 trillion, the ASX ranks among the top 5 global exchanges for raising capital. In addition to equities, the exchange hosts the largest derivatives market in Asia that lists AUD $47 trillion in interest rate derivative products. 

Quick Look: Investing in Australian Stocks

  • Step 1: Pick the stocks you’re interested in.
  • Step 2: Find a broker that allows you to trade how you like.
  • Step 3: Practice with a demo account before risking your own money.
  • Step 4: Purchase the stocks you want.

What is the Australian Stock Exchange?

The first stock exchange in Australia was founded in 1861 in Melbourne. This was 10 years after the country had its first gold rush and saw Australia’s population rise dramatically from just 430,000 in 1851 to 1.7 million just 20 years later in 1871. 

The exchange’s modern history began in 1987, over 125 years later, when the Australian Stock Exchange was incorporated as a result of legislation passed by the Australian Parliament. This market was renamed the Australian Securities Exchange in 2006. 

The ASX now ranks in the top 20 among the world’s leading stock exchanges and offers traders a full range of services, including listing, trading, clearing and settlement services for stocks and a wide range of other asset classes.

The ASX opens near the start of the global trading week on Sundays Eastern Standard Time (EST), and its pre-market trading runs from 7 a.m. until 10 a.m. Australian Eastern Standard Time (AEST). Formal trading on the exchange opens at 10 a.m., which translates to 12 a.m. Greenwich Mean Time (GMT) and the market then closes at 4 p.m. AEST (6 a.m. GMT). 

Pros and Cons of Investing in Australian Stocks

Australia’s economy is the 16th largest in the world with steady growth for 28 years in a row. This growth has also boosted Australia’s stock market, although the ASX is just now recovering from heavy losses sustained during the 2007-2008 Great Recession. 

Since early 2009, the ASX 200 benchmark index has risen modestly overall, although it failed to keep up with the more impressive growth seen in the Standard and Poor’s (S&P) 500 Index that serves as the broad benchmark index for the U.S. stock market. 

Percentage gains on the ASX 200 index compared to the S&P 500 Index since 2004
Percentage gains on the ASX 200 index compared to the S&P 500 Index since 2004.
Source: tradingeconomics.com

Australia has also become a leader in international trade and the home of many high tech companies over the past 2 decades. Investing in foreign stocks may require a bit more research than domestic stocks but the advantages can outweigh the negatives if you pick the right investments. 

Our list of the pros and cons of investing in Australian stocks appears below to help you get started.

Pros

Here are some benefits of participating in the Australian stock market.

  • Open and globally integrated economy: Australia’s attraction as an investment for global investors stems from the fact that the country’s economy has integrated completely with the world economy. Australia has the world’s 14th-highest GDP, ranks 6th in the world and 1st in Asia with $1.9 trillion funds under management, according to the Australia Department of Foreign Affairs and Trade (DFAT). 
  • World’s top producer of gold: The resource-based Australian economy is the world’s top producer of gold, uranium and iron ore. The ASX also has a large selection of mining stocks, which allows you to take an indirect position in gold and other mineable assets.  
  • Stable political and economic climate: Australia’s free-market democracy supports entrepreneurial development and has had a stable government for decades. The country’s skilled and educated workforce competes globally and makes the country a dynamic destination for investment.

Cons

Consider these drawbacks before investing in the stock market.

  • Global economic and stock market decline: A major global economic downturn would adversely affect all stock markets, including Australia’s. The Australian stock market suffered substantially during the 2008 Great Recession, despite its resource and commodity base and demand from emerging Asian markets.
  • Resource and carbon tax implementation: The Australian government has considered imposing resource and carbon taxes on its mining and other industries. This could affect the country’s ability to attract foreign investment and reduce earnings for the companies affected. 
  • Economy highly reliant on commodities: Because Australia’s economy is dependent on exporting natural resources, a period when commodity prices decline could severely impact the economy and investments in affected Australian stocks.
Chart of 10-year Australian Nominal GDP in millions of USD
Chart of 10-year Australian Nominal GDP in millions of USD.
Source: ceicdata.com

How to Buy Australian Stocks

Ready to get involved in the Australian stock market? Follow our step-by-step guide to get started.

Step 1: Select the Australian Stocks You’re Interested in

You have a wide range of ASX-traded stocks to choose from, although many international investors prefer to stick to well-capitalized stocks included in the ASX 200 index. 

For example, the resources sector includes BHP Billiton Ltd. (ASX: BHP) and Rio Tinto Ltd. (ASX: RIO), which are two of the largest mining and resource companies in the world. Also, some of the most widely held Australian stocks are in the financial sector, including Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX:CBA) and National Australia Bank (ASX:NAB). 

Many of the stocks mentioned above can be traded on U.S. exchanges through American depositary receipts (ADRs). You can also buy exchange-traded funds (ETFs) based on Australian stocks, such as the Australian Dividend Harvester Fund ETF, the IQ Australia Small Cap ETF (KROO) and the Vanguard Australian Shares High Yield ETF (VHY).

Step 2: Pick a Broker 

The Australian stocks you invest in are as important as the broker you invest with, so make sure you pick the right broker. Selecting an online stock broker for trading Australian stocks depends on which stocks you wish to invest in and where you live. 

For example, if you invest in stocks exclusively listed on the ASX, then you may need to open an account with an Australian-based broker or with an international broker that provides access to trading ASX stocks, depending on where you call home. 

U.S.-based traders who want to transact Australian stocks can find U.S. exchange-traded ADRs on many of the large-cap Australian stocks and they can use any U.S. stockbroker with access to stocks traded on the New York Stock Exchange (NYSE), NASDAQ Exchange (NASDAQ) and OTC Markets (OTCMKTS). 

You can even buy ADRs through commission-free brokers like Robinhood. You can also try using Fidelity Investments’ or Charles Schwab’s international accounts if you’re based in the U.S.

If you’d prefer to invest in ASX stocks through an international online broker, then Interactive Brokers could be a good choice. Interactive Brokers Australia Pty Ltd is regulated by the Australian Securities Investment Commission (ASIC) and provides clients with access to trade ASX stocks.

Their trading experience and platform are designed with more experienced traders in mind, and you’ll need a $10,000 minimum deposit to start trading. IB also charges an inactivity fee if your account remains idle.  

Step 3: Use a Demo or Practice Account

Most online brokers offer their prospective clients a virtual or demo account that does not require a deposit. A demo account is funded with virtual money and you can practice trading in a real-time market environment before you invest in stocks using actual money. These accounts are helpful to practice trading and gauge the quality of a broker’s platform and execution services. 

Step 4: Start Trading Australian Stocks

Once you’ve determined which Australian stocks you want to add to your portfolio and evaluated brokers using different demo accounts, you can now fund an account and start trading. You might want to watch the stocks you’ve chosen, especially if you plan to trade ADRs on U.S. exchanges, since the ADX is closed in Australia when the U.S. stock markets are open. 

Australian Stocks to Watch and Future Outlook for Market

You’ll find a treasure of high-risk stocks that have shown incredible returns if your risk profile includes highly speculative stocks. Note that the following is not investment advice, but simply stocks that have shown positive returns in the last year.

  • Advance Nanotek Ltd (ASX: ANO): Trading at AU$5.43 after a 52-week gain of +633%
  • Jumbo Interactive Ltd (ASX: JIN): Trading at AU$19.06 after a 52-week gain of +305%
  • Pro Medicus Ltd (ASX: PME): Trading at AU$28.88 after a 52-week gain of +242% 

In addition to the stocks with high 52-week returns mentioned above, some interesting ASX stocks to watch include: 

  • Nearmap Ltd (ASX: NEA): An aerial imagery tech company with strong recent earnings
  • Fortescue Metals Group (ASX: FMG): An iron ore producer
  • Afterpay Touch Group (ASX: APT): A payments service company 

With respect to our outlook for the Australian stock market and the ASX 200 index, gold has recently made an intermediate high over $1,500 per ounce and other commodities show solid demand. Those factors should support further upside in the Australian stock market provided that the global economy remains buoyant. 

Should You Invest in Australian Stocks?

Diversification is one of the golden rules of investing, and investing in another country’s stocks presents a different set of opportunities and challenges for an experienced investor. When investing in Australian stocks, you should consider that Australia’s economy has avoided problems seen in other developed countries in part due to its proximity to emerging Asian markets and its exports of valuable natural resources. 

While natural resource and banking stocks seem to be the most popular Australian investments, certain stocks within the country’s tech sector have gained considerably over the past year and they deserve any serious investor’s attention. Investing in Australian tech stocks could also somewhat mitigate the risk of carbon taxes imposed that would impact resource-based industries more negatively. 

Australian stocks can be bought through a variety of methods even if you don’t have an international or Australian brokerage account. You can easily participate in the Australian stock market through global depositary receipts (GDRs), ADRs and ETFs that can be accessed through stock exchanges based in the U.S. and U.K.

Interested in participating in foreign stock exchanges? Learn how to invest in Germany, how to buy Japanese stock, or how to invest in the Indian stock market.