NEW YORK ( TheStreet) -- Warren Buffett is making a big bet on Australia, but investors should be cautious about following the Oracle of Omaha's example and putting their own money Down Under.
Despite an agreement by Buffett's Berkshire Hathaway to pay A$500 million for a stake in an Australian insurance firm and the country's free-trade deal with China signed Wednesday, analysts see limited growth potential in Australian stocks in the near future, thanks to a slowdown in demand for some of the country's biggest exports.
On a scale of one to five, where one represents a market with all stocks at sell ratings and five a market with all stocks at buy, Australian stocks average 3.5, according to the study. That compares with Korea's 4.4 rating and China's 3.9.
Among the reasons is that one of the continent's key industries, mining, has seen a steep decline in production. Miners produce more than half of the country's exports and account for several of Australia's largest-revenue companies, including No. 1 BHP Billiton (BHP).
Both BHP and Rio Tinto (RIO) benefited from an economic boom in East Asia, as manufacturers bought more and more of the raw materials from Australia's naturally occurring reserves of metals and minerals. Australia was particularly well positioned to supply raw materials to real estate developers in China, said Gordon Johnson, an energy and metals analyst for Wolfe Research in New York.