It is no secret that Australia’s immigration program is running hot.
The latest estimates by AMP (ASX: AMP) economist Shane Oliver are that we are on track for net immigration of 500,000 or more in the last financial year – a number which would take population growth to 2.5%, its fastest level since 1966.
Most of the discussion around so called “Big Australia” has so far been negative, looking at everything from scarce housing to crowded public transport, downward pressure on wages and falling per capita GDP.
Some of these criticisms may be quite valid but if you look at it another way, strong immigration should also be very positive for many of the companies on the Australian share market.
Earnings growth not widely acknowledged
A few brokers are now starting to notice that the growing pool of newly arrived and generally younger workers and consumers could build in some handy compound growth for many companies – growth that in many cases is yet to be factored into share prices.
Even if we see the current immigration surge as a bit of a COVID catch up, there should still be solid growth to be had.
If we instead take Treasury’s more muted estimate of 1.1% population growth over the next 40 years in the latest Intergenerational report as gospel, that still makes Australia one of the faster growing populations in the world, particularly among developed economies.
Stockbroker UBS’s Australian equities research team strategist Richard Schellbach thinks the power of population growth is reflected in only 40% of the 220 stocks his team covers, which would mean that investors are discounting the long-term tailwinds that continuing relatively strong population growth can provide.
Those tailwinds are not just around the growing customer numbers that a rising population brings but should also help to offset the effects of an ageing population and provide a steady stream of capital for companies to use to fund growth.
Population growth could double earnings growth
Mind you, the direct effect of population growth is significant over the longer term and on its own could boost the currently expected 4% a year of earnings growth into a number double that or more, given that other periods of strong migration produced similar strong surges in earnings.
With Australia having quite a concentrated market compared to many with a handful of big companies dominating many important sectors, that earnings surge on its own could be significant.
Migrants should chase housing and shares
When migrants come to Australia, they need to spend a lot on goods and housing but they also latch on to the local culture and in this country that means both housing – which is already in short supply and running quite hot – and also shares, which are arguably running much cooler at the moment.
With more working Australians tipping money into super to help replace that being withdrawn by older generations and also a strong culture of direct investment driven by dividend imputation and successful privatisations, there could well be a bigger investment pool to provide investment capital and bolster company growth plans.
That could particularly be the case for global companies with Australian roots given that some of the companies they compete against – particularly in Europe but also other parts of the world – could be relatively capital starved as their pools of investment capital shrink.
There is a long list of Australian companies with strong global footprints and also a healthy Australian exposure in terms of customers and capital – CSL (ASX: CSL), Amcor (ASX: AMC) and Transurban (ASX: TCL) are a few good examples – and many of the large companies in banking, mining, retail and telecommunications should also benefit from any rising tide.
So, you probably don’t need to be an active stock picker to benefit – an ASX 200 exchange traded fund (ETF) should do the job nicely – with the added advantage of broad diversification and lower risk.
As always, predicting the future with any degree of certainty and precision is a mug’s game, however, even if the Big Australia surge is less pronounced than expected a broad market exposure might still ride other tailwinds higher.
