KEY POINTS:
There has been a lot of talk about how much better off those living in Australia are - they earn more, pay less tax and, according to latest health figures, can expect to live on average a year longer than New Zealanders.
The Australian economy has thrived on
the back of a resources boom driven by huge expansion in China and a financial services industry buoyed by its compulsory superannuation policy.
Short of moving across the ditch, there seems little we can do to keep up. But rather than beating them, one way to join them is through investing in Australian companies.
Despite the turmoil in world markets this year, which has hit the Australian bourse harder than our own, there remains a good case for investing across the Tasman. The ASX-200 started to bounce back last week - it climbed 5 per cent on Friday - and now might be the right time to pick up a bargain.
ABN Amro Craigs analyst Mark Lister says investing in the Australian market can be a good stepping stone for New Zealanders looking to diversify their investments.
"New Zealand is such a tiny part of the global economy - it makes no sense to have all your wealth here. Australia is still small but it's a lot bigger.
"Our economies move in tandem in a lot of ways but the depth of the market in Australia is so much greater, plus there are lots of sectors you just can't get access to in New Zealand."
Almost 2000 domestic securities are listed on the Australian Securities Exchange - a big jump from the 164 listed on the New Zealand stock exchange.
Australia's top end of the market is dominated by resource and mining stocks such as BHP Billiton and Rio Tinto as well as major banks - National Australia Bank, Commonwealth Bank of Australia, ANZ and Westpac.
Its biggest listed company, BHP Billiton, has a market capitalisation of around A$205 billion - a giant in comparison to Telecom's $7.5 billion and far larger than our biggest industry player dairy co-operative Fonterra, which is estimated to have a market cap of around $10 billion.
Fisher Funds Australian equities manager Frank Jasper says there are almost 70 listed companies alone in Australia's medical devices and services sector.
"You can invest in companies which make artificial hearts or medical lasers."
It's a market that is familiar to us - many Australian brands are also widely available in New Zealand and many New Zealanders go to Australia each year on holiday or business trips and feel comfortable with big names such as Woolworths and Telstra.
Mint Asset Management's Australia and New Zealand active equity Trust manager, Shane Solly, says the Australian market presents great opportunities but there are also downsides.
"Shares tend to cost more and the market can have bigger swings because of the type of companies which make it up."
The top end of the New Zealand market features companies like Telecom and Contact Energy which are relatively defensive, whereas the top end of the Australian market has suffered recently because of exposure to the US credit crunch in the banking sector and a downturn in the commodities market.
Another issue to watch for is imputation credits.
Companies' franking credits (called imputation credits in New Zealand), which they give out with their dividend payments, cannot be used by New Zealand investors.
The credits are a way for investors to offset their income tax but are available only to those who pay tax within the country they are issued in, as they are a means to stop double-taxing (taxing the profit both at the company and the individual end).
For those who do decide to take the plunge there are two main ways to invest - either directly in securities listed on the exchange or through a managed fund where your money is pooled with other investors and then invested in securities.
Tax changes brought in from last October mean managed funds which were set up or converted to portfolio investment entities (PIEs) are now on a level playing field with direct investments.
Previously most managed funds were taxed at the company rate of 33 per cent on capital gains and all investors were taxed at 33 per cent on any income from the fund.
This meant it was more tax-efficient to invest directly in securities or in passively managed funds which were exempt from the capital gains tax.
Investors in PIE funds are now taxed at a so-called prescribed investor rate, which means those who earned less than $38,000 for either of the last two previous tax years can go on the 19.5 per cent rate and can also stay on the lower rate until their PIE income takes them over $60,000.
Taxpayers in both the 33 per cent and 39 per cent tax brackets pay 33 per cent on the PIE income, dropping to 30 per cent from April.
PIEs themselves will be exempt from paying capital gains tax on most companies on the Australian All Ordinaries index - this covers around 500 companies. All others will come under the fair dividend rate which was introduced last April.
"The big investment grade stocks are all covered. But for people who want to have a go at something, the Aussie market does have lots of opportunities," says Jasper.
Around 15 per cent of his Australian Growth fund comes under the FDR rule.
He says the advantage of managed funds is that the tax is all worked out for you so if you want to invest in some of the smaller Australian companies you don't have to work out FDR yourself.
Fund managers are also able to get access to information about smaller companies, which may be hard for individual investors to find out and will often make time to meet and get to know the management of a company.
Solly says managed funds mean you get professional management and someone who is focused on finding and investing in the best companies. The downside is that it also has a cost which will eat into the investment return.
Five PIE funds at present invest only in Australian shares but a number of New Zealand share funds also invest in Australian shares.
Two of the five PIEs are passively managed share funds which track indices and are run by the NZX under its Smartshares banner.
They have lower fees than actively managed funds where the manager selects companies to invest in.
Lister says the PIE changes have opened up managed funds as an option but his firm prefers to recommend direct investment because of the costs.
"We prefer to invest direct - the key reason being the fees of fund managers. One of our mantras is fee minimisation. However, there are pluses and minuses to both forms and many people are now choosing to have a mix in their portfolios."
A huge amount of information is available over the internet for investors who want to invest directly.
A good place to start is the Australian Securities website, www.asx.com.au, which also has free information on how to invest in the sharemarket for beginners to those more advanced.
Newspapers such as the Australian Financial Review can also be a good source of information and most financial experts in New Zealand will also have a good knowledge of what is happening in the Australian market.
Jasper believes the key to successful investing is getting good advice.
"Start small if you are going to do it direct or maybe do a bit direct and invest some with a fund manager where you can learn from what they do."
Solly says his main advice is do your homework.
"Spend time understanding the business and keep a close eye on it. It's important to understand the tax implications of investing as well. You can't just put your shares in a bottom draw and forget about them."