Australia

Australia to benefit from the Warren Buffett touch

Warren Buffett, BBC TWO - Monday 26th October 2009
Image caption The world's best money maker, Warren Buffett, has turned his attention to Australia

When Warren Buffett makes a move, others are sure to follow.

As the world's most successful investor - his company Berkshire Hathaway is worth $200bn (£128bn) - the decisions he makes have big ramifications for companies, industries and sometimes, for countries.

This week, it has been Australia's turn.

Mr Buffett's A$500m ($386m, £247m) investment in one of this country's biggest insurers, Insurance Australia Group (IAG), has spurred speculation about other companies he might invest in.

Mr Buffett does not like taking risks, a senior analyst at investment research firm Morningstar, David Ellis, told the BBC.

"He wants a reliable return, and that's what the Australian market gives him. It is very mature and well run," explains Mr Ellis about why the American investor from Omaha has invested in IAG.

Worth the wait

In a video statement he made overnight, Mr Buffett told his faithful following: "I'm 84 and this is my first investment in an Australian company."

"I've been very derelict but it has been worth waiting for," he said.

The recent decline of the Australian dollar may have prompted his move.

Six months ago, Mr Buffett would have exchanged one Australian dollar for one US dollar. Now he gets a A$1.30-bang for his US buck.

"The expectations are for the [Australian] dollar to keep on falling, and that would mean he can increase his holding [in IAG]," says Mr Ellis.

Image copyright Getty Images
Image caption Speculation has already begun about Mr Buffett's interest in Australian banks

The current investment in IAG will give the American investor a substantial cash flow which he said he would re-invest in Australia.

His has his eye on Australia's big banks.

"I would say there is a good chance that five years from now, we will have bought one or more positions in Australian banks," he told Fairfax Media in a telephone interview.

Berkshire Hathaway has a track record of buying cheaply and making significant profits, but Australian banks are not cheap.

"If Warren Buffett is interested in banks, there are only four major banks in Australia, and they are relatively expensive compared to others worldwide, for a good reason," says Mr Ellis.

"They are very profitable, they hold strong market positions, and are backed up by reliable regulation."

Julian Lorkin is a Sydney-based business writer.

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