Stocks Sizzle Down Under

It's been really hot down under, and not just on Sydney's sandy beaches.

Australian and New Zealand stocks sizzled in 2004, posting a return nearly triple that of the S&P 500. Aussie gains were mostly powered by mining companies capitalizing on the global spike in commodity prices, as well as financial services companies taking advantage of the region's sublime economic conditions.

For more insight on Aussie stocks in 2005, TheStreet.com tracked down Steve Robinson, co-portfolio manager of the Aberdeen Australia Equity (IAF Quote) fund. Aberdeen Australia is a closed-end fund listed on the American Stock Exchange and is one of the few funds available dedicated to holding just Australian and New Zealand stocks.

The fund has returned 30% annually over the past three years and 14.6% over the past five, a period that includes the global bear markets of 2001 and 2002. In 2003 and 2004, Aberdeen returned a not-too-shabby 57.5% and 39.6%, respectively.

What are your projections for Australian and New Zealand stocks in 2005, coming off a highly impressive 2004?

The Australian equity market reached new all-time highs in 2004, with a return of 28% for the year including dividends. Although we don't think the market will achieve similar gains this year, the equity market does not look overly expensive and is still trading at a P/E discount to the U.S. and U.K. markets. Furthermore, the market is paying an average dividend yield of 4%.

Economic conditions remain solid, with consumer sentiment close to decade highs and the unemployment rate at 20-year lows. Leading indicators continue to point to solid growth in the domestic economy. The New Zealand economy is in a similar situation.

Australian mining stocks have become very popular with U.S. investors, as commodities prices have risen. What do you project for commodities prices in 2005? What stocks do you like in this sector?

After a number of years of underinvestment in the mining industry worldwide, it will take some time for supply to catch up following the current surge in demand for metals. This is likely to support prices over the next few years. Bulk commodities such as iron ore and coal are achieving strong price rises in the current round of price negotiations, and companies with exposure to these will benefit significantly. BHP Billiton (BHP Quote) and Rio Tinto (RTP Quote) are the largest producers of iron ore in Australia and have significant exposure to coking and steaming coal. We have significant holdings in both companies.