Did you know that Australia is the biggest island on Earth and its smallest continent? It is also the only country in the world that is a whole continent. Its capital Canberra was born out of the quarrel between Sydney and Melbourne about which city should be named capital – the authorities decided to simply build a new capital between the two!
Fun facts about Australia aside, the country is an advanced economy that has come a long way since the time it was born as the Commonwealth of Australia in 1901. Australia leveraged its rich natural resources and developed its agricultural and industrial capabilities to become one of the fastest growing economies of the world. Playing a large role here was the country’s adoption of farsighted economic reforms in the 1980s and its fortuitous location in the midst of the emerging economies in the Asia Pacific region. Australia found a hungry market for its offerings of mineral resources, energy, agricultural produce and precious metals.
As a result, Australia’s strong economy, coupled with impressive market capitalization and responsible regulation are some of the reasons to consider (Australian Securities Exchange) ASX companies.
Steady commodity exports helped set the foundation of a market economy that grew on average of 3.5% annually for over two decades to 2012. The Australian dollar became a very strong currency, representing an economy that featured good employment, low inflation and minimal government debt. The commodity super-cycle was made-to-order for the Australian economy: the country’s vast reserves of energy resources (coal, uranium, natural gas), industrial metals (iron ore, copper, alumina) and precious metals such as gold, all sold for higher and higher prices and generated huge export revenues for Australia.
It also boasted of a well-managed and strong financial system that emerged relatively unscathed from the global financial turmoil post-2008. Mining companies such as BHP Billiton and Rio Tinto, banks such as National Australia Bank and ANZ Banking, and communications company Telstra, all listed on the ASX, were some of the Australian corporations that achieved international stature, and became known worldwide. The Australian economy now stands at #12 in the global pecking order as ranked by GDP during 2012 (source: World Bank).
The growth in the economy attracted investors from all over the world, seeking to invest directly in Australian businesses or make portfolio investments through the equity markets.
With the economy growing at this hectic pace, could the equity market be far behind? Not at all – it kept pace, and in fact, is now ranked 8th in the world on the basis of market capitalization. The market capitalization of listed Australian companies grew from US $138 billion in 1988 to US $1.3 trillion in 2012 (source: World Bank). Latest statistics from the ASX put market capitalization at $1.4 trillion and the number of listed companies at 2,185.
The growth and size of the listed securities market in Australia is an indication of its sophistication, reach and depth.
The Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC) share the key regulatory responsibilities for the Australian capital markets. Broadly, the ASIC is responsible for the regulation of trading activities in the country’s markets, while the RBA governs whether these markets are in compliance with Financial Stability Standards, and whether they pose any systemic risk to the financial structure of the economy.
These two agencies, along with the Australian Prudential Regulatory Authority (APRA) and the Australian Treasury are members of the Council of Financial Regulators, an apex body for the overall governance of the country’s financial markets. Intermediaries and participants in the country’s financial markets are screened through a rigorous licensing system. The ASX is primarily regulated by ASIC and the RBA.
Effective regulation that was ever watchful for systemic risks was a major factor that reined in the impact of the global financial crisis on Australian financial markets. Coupled with a strong, yet growing economy drives ASX companies forward, pushing its already impressive market capitalization further. These are some of the reasons why marquee investors across the globe do not hesitate investing in the ASX when opportunities arise.