Australians flock to international shares as local dividends nosedive

author-avatar By on September 21, 2020
Australians flock to international shares as local dividends nosedive

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Online share trading platform CMC Markets has seen an uptick in international market investing, as users seek diversity and chase capital gains.

According to CMC, just over one in six (17%) people on the platform plan on investing in international shares in the next year.

CMC's director of stockbroking Andy Rogers puts the interest down to investors seeking a diversified portfolio and higher returns.

"There is still very strong demand for Aussie stocks, but ultimately clients are looking for better returns, which is why they are adding international to their portfolios, and why we have continued to build out our international offering," he told Savings.com.au.

"If we look at the ASX in comparison to US markets for example, while the ASX is highly correlated to US markets, it has underperformed the US since the global financial crisis in 2008.

"There is a lot of opportunity in international markets and clients are increasingly switching onto this."

In May, it was estimated that $10 billion was lost due to big banks suspending or slashing their dividend payments. 

ANZ and Westpac axed their interim dividend payments, while NAB cut its interim payment by two thirds, down to 30c per share. 

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However, Mr Rogers said a diversified portfolio is the main motivator for investors at the moment.

“In recent months, we have seen intensified global market volatility and, in turn, increasing demand from traders and everyday investors looking to access international shares," he said.

“Over the last five years, we’ve witnessed an increase self-directed investors looking to international markets in order to diversify their portfolio and access sectors and companies not available on local exchanges.”

Australians' love for the dividend

Despite dividend yields taking a nosedive in recent months, Mr Rogers said users are looking internationally to complement their domestic portfolio rather than replace stocks with traditionally high dividend yields.

"If we look at dividends, despite the reduction across the four major banks in recent times, the number of accounts holding these instruments has actually grown by an average 19% year on year," he said.

According to EuroMoney.com, Australian shares have historically paid a 4.5% dividend, compared to 2.5% globally. 

Australia's major banks - ANZ, NAB, CBA and Westpac - have traditionally paid about 5-8%, with favourable tax advantages such as dividend imputation and a discounted capital gains tax driving popularity of high dividend-yielding stocks.

According to Paul Xiradis, chief investment officer as Ausbil Investment Management, over the last decade, 87% of all investor returns from Australia's top 200 companies have been through dividends and distributions.

Total return over the period was 7.1%, with 6.1% being dividends, and half of those dividends were paid by just eight companies. 

This is as opposed to other markets, particularly the United States, where investors chase pure capital gain. 

In 2019, the US' S&P 500 gained nearly 29%, as opposed to Australia's ASX 200 12.26% gain over the same period.

It also took more than ten years for the ASX 200 to reach pre-Global Financial Crisis levels, as opposed to just five years for the US' Dow Jones index.

New Zealand the new darling?

A recent investor survey by Investment Trends showed a quarter of people who started trading in the past year said access to international markets was a 'key feature' in their choice of trading platform.

This comes as CMC Markets added four new international markets to its trading platform, including New Zealand, Denmark, Sweden and Spain, on top of 18 other international markets.

The New Zealand market (NZX), in particular, has seen strong interest, according to Benjamin Phillips, an executive director at NZX.

"On-market trading has doubled over the past five years, normalising above 60%  – representing a step-change in this primary measure of market integrity and price transparency," he said.

“Two key features of the New Zealand market are its defensive stocks – including privatised energy companies with cornerstone Government shareholdings – and also the proven resilience of its market, demonstrated through COVID-19 market correction and recovery.

“The S&P/NZX 50 has already recovered more than 34% from the low-point of March 2020 and outperformed the S&P 500 year-to-date.”

However, earlier in the year, the securities regulator ASIC warned against people turning towards riskier daytrading, and in its study focus period found more often than not, investors lost money when attempting to 'time' the market.


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author-avatar
Harrison joined Savings in 2020. He is a journalist with more than four years of experience, with previous stints at News Corp and financial comparison site Canstar. With a keen interest in personal finance, Harrison is passionate about helping consumers make more informed financial decisions.

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