With over 2,200 securities listed on its platform, the Australian Securities Exchange (ASX) is the biggest local exchange for Australians interested in building capital.
Its size isn’t the only thing going for it; it has a mature regulatory framework, a diverse portfolio of industries, and an array of investment options that benefit from operating within the robust Australian economy.
Furthermore, many industries listed in the ASX are growing and achieving greater heights, even as the world around it is experiencing volatile market shifts.
The tech and mining industry, in particular, has been a generous wealth generator for early investors, and the growth of businesses within its field shows no signs of slowing down just yet.
Whether you’re an Australian citizen or an overseas investor looking to diversify your portfolio, the ASX is a fantastic place to grow your money and build capital.
So don’t be afraid and take that leap! Let’s take a look at seven reasons why the ASX presents a compelling opportunity for investors to allocate their capital.
1. Provides Access to a Wide Range of Companies
One of the biggest perks of investing in the Australian stock exchange is that it exposes your portfolio to a wider range of companies—and not just any mom-and-pop shop.
These Australian-based, publicly-listed companies benefit from being operated and headquartered in one of the most highly developed economies in the world.
These companies also benefit from being managed by Australian talent and having close access to the country’s abundant natural resources, spread across its vast 7 million square kilometre landmass.
With Australia being one of the world leaders in healthcare, renewable energy, and mining, putting a stake in these industries by investing in public companies is a good way to take advantage of these good business conditions.
Furthermore, the sheer diversity of companies listed in the exchange also allows investors of different risk tolerances to find a stock option that matches their financial needs. This also helps make it easy for prospecting investors to diversify across different Australian industries with ease.
With all that said, if there’s one company you’re eyeing within the Australian market, you’re likely going to see it listed in this exchange over any other Australian markets.
This demonstrates this exchange’s importance in the local economy and even the global market at large for people keen on investing in Australian businesses.
2. Many Stocks Provide Dividends and Passive Returns
There are a plethora of stocks listed on the ASX that pay monthly and annual dividends. These returns provide investors with a guaranteed passive income stream that can help keep their capital and investment portfolio in top shape.
Some examples of dividend-yielding stocks in Australia include Fortescue Ltd (FMG), Yancoal Australia Ltd (YAL), Commonwealth Bank ASX (CBA), and Woodside Energy Ltd (WDS). As seen above, dividend-yielding stocks can range across different industries, making it an ideal stock option to diversify.
For the unfamiliar, a dividend is a share of the company’s periodic profits distributed to shareholders. A dividend is particularly enticing for Aussies because of the tax advantages Aussie investors can collect from the local franking credit system.
Annual dividend yield can be as high as 10%, but the majority of dividend-yielding stocks usually provide annual returns of about 6% to 8%.
This tax system distributes dividends post taxes thanks to its franking credits, allowing investors to evade getting double-taxed legally. This system makes dividend-yielding stocks an appealing option for investors looking to invest in the Australian market.
Dividends are a great way to gain a steady income. However, not all dividend-yielding stocks indicate good company performance. As such, be sure to do your research on the overall company’s performance, from its fundamentals to its technical chart movements.
3. Allows You to Tap Into Australia’s National Strengths
Australia is a country endowed with an abundance of natural resources. In particular, it’s home to a strong agricultural, mining, and energy industry.
This reality positions Australia and Australia-founded companies as highly respected contenders in their respective industries on the global stage.
Australians can feel confident investing in companies with sound fundamentals within those respective industries. This is because the resources they’re working with are part of a thriving supply chain that’s utilised and exported all around the world.
Unlike the USA and its various public companies, Australian companies are often overlooked as international investments. This means a lot of companies within the space are undervalued in the global context.
This presents an attractive opportunity for investors to capitalise on sectors that are bound to thrive.
If you believe Australian resources will remain stable over the long term—which they likely will—this can make Australian companies that deal with said resources appealing investments for your portfolio.
4. There’s Plenty of Room for New Stocks to Grow
Australia is a rapidly growing economy, and there are many new publicly-listed companies popping up within the ASX on a healthy and regular basis.
These companies span across a wide variety of industries. Some, to name a few, include businesses in the fields of technology, healthcare, mining, energy, and telecommunications.
The dynamic nature of the Australian market shows its resilience and opportunity for growth in the long term.
It also shows that the ASX is a healthy market where companies can continue to grow, expand, and compete with other businesses—making it the perfect arena for investors to potentially grow their wealth.
5. It’s a Great Way to Diversify Your Portfolio
Generally speaking, having multiple eggs in one basket can help you weather large price swings (including downswings) from an individual stock or sector. This stabilises your investment portfolio, upping your chances of stock market success and preventing a massive loss of capital in the process.
Investing in stocks or ETFs listed in the Australian Stock Exchange helps you diversify your stocks across a mature market that has its own different set of external variables affecting its fundamentals—regulatory, economic, and other socio-political factors.
Diversification helps you retain value in your portfolio if, say, the entirety of the US stock market goes down or if your local stock exchange is underperforming.
This fact is enough to have a contingency stock market like the ASX to look into to grow your wealth, as Australian stock prices have independent price movements from NASDAQ, S&P500, and other international exchanges.
6. Stable Country and Market
Australia is one of the world’s leading economies, and its citizens enjoy higher wages and quality of life than most places in the world—even some developed countries.
While this may come at a higher cost of living, there’s no denying that the Australian economic landscape is something many countries dream of having.
This, in itself, provides a good reason for Aussies and overseas investors to put a stake of their wealth in the ASX, whether it’s in ETFs or individual stock.
Furthermore, as long as Aussie lawmakers and officials continue to provide good governance to their citizens, and as long as the economy keeps working at its current pace, the Australian market is set to only go up from here on out for years to come.
This assures that investors can gain capital appreciation over the medium- or long-term, granted that they’re investing in a growing company or the market at large.
7. It Grows Your Capital Over Time
Capital appreciation is one of the number one reasons why people choose to invest in stock markets. And by investing in the ASX and doing it strategically, you’ll find no hardship in allowing your initial investment to grow beyond its initial value with some time.
The key word here is “strategically”. You can only go so far shooting a dart in a dartboard when it comes to making investments and seeing what sticks. You’ll need to be smart, strategic, and thorough before making an investment decision in the ASX—and any other exchange, for that matter.
To be strategic, you have to research the company’s fundamentals and historic chart patterns. From there, you can decide whether to invest in the company and determine the amount you should invest.
Once you’ve found a potential company candidate to invest in, you can allocate a portion of your funds to it. When you’ve followed all the right steps in picking the right investment, you can simply sit back and watch your investment grow.
Be sure to have an exit plan before investing; this way, you’ll be able to reap the rewards of your investment on time.