Making Australia a Part of Your Portfolio

Roger Nusbaum submits: Barron's Asian Trader column this week focused on the possibility that valuations in the Australian market, but not the big miners, are too high and ripe for a correction.

Australia has been very hot, there has been a lot of M&A activity, the Aussie dollar has been strong, there has been no recession in 16 years, and the benchmark ASX 200 index has been making new highs for months.

Over the years that I have followed this market, there have been a few dips -- but no panics that I can recall. There certainly could be some sort correction coming, but the analysis in the article did not seem to spell it out very well.

If there is a correction, the reason may not matter a whole lot. The more visible catalyst to me would be a spectacular decline in China. Australia dropping in sympathy with China might not be fundamentally justified, but would probably happen anyway.

The reason I say not fundamentally justified is the that no matter where the Chinese market is, the country of China is still going to need a lot of the stuff Australia sells.

I write often about Australia as an important investment destination. It is a commodity-based economy, which offers developed market diversification to the U.S. service-based economy. Stocks there tend to be a little cheaper, and have much higher yields.

As much as I like Australia and put it in every account, clients only own one stock (or ETF depending on the circumstance of the client) that started as a 3% weight and has grown a little larger depending on how long they've been a client. A few clients also have very small positions in the Australian Dollar CurrencyShares (FXA) too.

Yes another post about moderation. At some point Australia's stock market will have some sort of problem for some reason. Having a small position means being right about why or when is far less crucial than if I had 20% in Australia. This applies to any theme you think is important.

Exposure to other foreign countries having little to do with Australia or the U.S. also creates diversification, here Ireland comes to mind as an example.