Whether you invest domestically or abroad the objective is the same: to earn the highest return possible commensurate with risk.
Many Australian companies have large international operations, benefiting from global opportunities. If you own a portfolio of Australian stocks, you will likely be invested in some of these companies.
Indeed, Australian mining companies are among the largest in the world and sell their product for the most part in US dollars.
However, in practice there are drawbacks to international investment.
Firstly, there is a risk that the exchange rate may go against you, and you may lose money. This adds a further level of complexity and uncertainty to your life. If you are paying your bills in Australian dollars, it’s better to generate your income in Australian dollars.
Secondly, Dividend Imputation provides Australian stocks with a huge advantage, whereby the ATO refunds to Australian resident taxpayers on dividends they receive, the 30% tax companies pay on their profits. This represents a 30% uplift in income. In valuation terms, Australian resident taxpayers effectively buy Australian stocks up to 30% cheaper than an overseas investor buying the same Australian stock.
Even apart from dividend imputation, the dividend yields on international stocks are generally much lower than on Australian stocks.
Thirdly, most international investment is done through managed funds, which are expensive and inefficient. (Indeed, it is the managed fund salespeople who argue the case for international investment most strongly).
Australia is one of the world’s most desirable nations and economies. It has a stable Western democracy, the rule of law, vast mineral wealth, strong population growth, and a AAA credit rating.