International comparison of Australia's investment and trading position

Preliminary results suggests that Australia's external holdings of equity and debt as a percentage of national income almost doubled between 1997 and 2001. However, Australia international investment position as a percentage of national income is one of the lowest among the major OECD countries. In 2001 approximately two-thirds of Australia's total investments were invested in the US and the UK. In contrast, Australia's trade share (exports plus imports as a percentage of Australia's world trade) with these countries was approximately 20 percent in the same year. The major determinants of Australia's geographical allocation of portfolio investment indicate a broad correspondance between stock market capitalisation of destination countries and the allocation of Australian financial investments but with some deviations from that baseline, where the deviations are correlated with Australian trade patterns. Australia's disproportionate investment in a few countries can be attributed to an extension of the home bias puzzle that has been observed by many researchers.