Comparing the Stock Market Weightings of Australia and USA

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The US and Australian economies are vastly different. The Australian economy is resource-based and more like the economy of Canada. Accordingly the Australian equity market is also highly concentrated in the mining of minerals and the financial sectors. The US equity market on the other hand has a low weightage of the minerals sector and is more focused on the tech and communication industries.

The following chart shows the comparative weightage of the various industries in the Australian and US equity markets. The minerals and financial services sector accounts for about 55% of the Australian market. The information technology industry constitutes 27% and the communication industry takes up another 10%. Together these two industries amount to about 37% of the market.

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Source: Why does Australia’s skewed stock market underperform?, FirstLinks

Hence the technology focused US market has soared in recent years with the growth in the sector. Similarly when commodities boom the Australian stock market tend to perform well.

For investors in Australia it is smart idea to diversify internationally especially with some allocation to US equities in order to profit from the rise of the technology sector.

Related ETFs:

  • SPDR S&P 500 ETF (SPY)
  • SPDR Dow Jones Industrial Average ETF (DIA)
  • iShares MSCI Australia Index Fund (EWA)

Disclosure: No Positions

Didi Global To Delist From New York Stock Exchange

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The latest Chinese firm that plans to delist its ADRs from the New York Stock Exchange is the ride-hailing giant Didi Global (DIDI). According to The Wall Street Journal the firm plans to pursue a listing on the Hong Kong Stock Exchange. Didi’s delisting has come just a few months after listing on the NYSE on June 30th of this year at $14 per ADR. The shares have fallen 44% as of yesterday’s close. From the journal article:

In July, The Wall Street Journal reported that Didi was considering going private to placate Chinese authorities. The Journal also reported in October that China’s internet watchdog had suggested that Didi explore a listing in Hong Kong.

However, Didi’s Thursday statement suggested the company isn’t going to pursue a take-private deal that would buy out the shares held by public investors—a transaction that would require billions of dollars of financing given its market capitalization.

Instead, Didi said it would apply to delist its American depositary shares from the NYSE, while ensuring they would be convertible into shares that could be freely traded on another international stock exchange. It said it would arrange a shareholder meeting to vote on the move. Didi didn’t provide a reason for the planned New York delisting.

Source: Didi Global Plans to Delist From New York Stock Exchange, WSJ

If you are holder of Did ADRs you may be wondering what are your options now that the ADR is getting delisted. The following article I wrote a few years ago may provide some answers to those and other questions:

Disclosure: No Positions

Long-Term Returns of Gold, Stocks and US Treasuries

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The long-term returns of gold, stocks and US Treasuries are shown in the table below. Just like other assets, gold also outperformed other assets in some periods while under-performing in others. Overall gold has increased from $40 per ounce at the end of 1970 to $1,887.60 at the end of 2020, for an compound annual return of more than 8% according to a report by The Perth Mint of Australia.

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Source: The case for gold: A special report for institutionally managed superannuation funds, The Perth Mint

From an investment point of view, gold has low correlation to stocks as the above table shows. Hence investors can allocate a small portion of their portfolio assets to gold.

Related ETFs:

  • SPDR Gold Trust ETF (GLD)
  • SPDR S&P 500 ETF (SPY)
  • iShares TIPS Bond ETF (TIP)

Disclosure: No positions

Automotive Supply Chain Networks Could Shrink With The Shift To Electric Vehicles

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The automotive industry is projected to see major changes in the year leading to 2030 as the world moves away from internal combustion engine vehicles to electric vehicles (EVs) according to the World Investment Report 2020 published by UNCTAD. Today the auto industry is a highly complex industry with many Original Equipment Manufacturers (OEMs) and multiple layers of suppliers spread across many countries. Thousands of auto parts companies exist whose only purpose is to supply the parts – which include everything from car seats to batteries to park plus and everything in between – they make to the auto makers. In a way auto makers can be called as auto assemblers since they just buy a bunch of parts and assemble them together like putting together a puzzle or a Lego toy. With that said, below are a efew interesting facts:

  • 15 countries in the world are major auto hubs today accounting for 88 percent of the global auto production in 2018.
  • The drivetrain for an internal combustion engine has more than 2,000 parts while EVs have only 20.
  • The value added are concentrated in just a few parts with the battery in EVs accounting for about 40 percent of the total cost of the vehicle. Hence EV supply chains tend to be fewer.
  • For example, EV maker Tesla has only 300 suppliers spread across a few countries against thousands of suppliers for a traditional automaker.
  • High concentration of value added around battery producers and software providers will also reduce geographic spread.
  • While the global auto supply chain is spread over many countries today, the emergence of EVs would lead to newer infrastructure for EVs and other related economic activities.

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Source: World Investment Report 2020 – International Production Beyond the Pandemic, UNCTAD

Related stocks:

Disclosure: No positions

Bull and Bear Market Cycles for Gold from 1970 to 2016

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The average bull and bear market lengths for gold are 63 and 44 months respectively for the period from 1970 to 2016 according to a report by World Gold Council. The table below shows the bull and bear market cycles and the corresponding returns.

Gold closed at $1,789.10 on November 24th in New York per Kitco.

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Source: The case for gold: A special report for institutionally managed superannuation funds, The Perth Mint

The Perth Mint report notes that gold needs to trade at about $5,000 per ounce during this current bull market cycle that started in December, 2015. It remains to be seen if gold can reach that levels in the coming months or years.

Related ETF:

  • SPDR Gold Trust ETF (GLD)

Disclosure: No positions