- Complicated and rigid labor rules continue to hamper productivity growth, which seems to be slowing.

- The total tax take by the Australian federal government is 22%, which is higher than the rest of Asian competitors and the U.S. (average of 16%).

- From 2000-2004 housing prices were up 100%, and household debt is now 160% of disposable income. Australia is taking some measures to address these matters. It recently enacted a $17 billion cut in personal income taxes over three years, and the independent central bank is raising rates. The leadership has also introduced a package of "radical" labor reforms, which if enacted would also be a big plus. The aim is to give employers more flexibility and to bring labor negotiations down to the local level. The measures would increase probationary period for new employees from three to six months, exempt businesses with less than 100 employees from unfair dismissal laws, and favor individual contracts over collective bargaining. All of these measures will be fought by the

- International fund managers are underweight on Australia.

- The market is not especially expensive. The 12-month forward price-to earnings ratio is about 15, in line with the average over the past three years and below a high of 18. But keep in mind that this low multiple is based on forward and aggressive forecasts of corporate profits.

- Average dividend yield for Australian stocks is around 5%. One company to keep an eye on is BHP Billiton (NYSE: BBL), the world's biggest mining group, which reported an 85% rise in net profit, compared with a year ago, to $6.5 billion for the year ended June 30, 2005. The Anglo-Australian firm set a new Australian corporate profit record, and after being up sharply in 2003 and 2004, it has confounded skeptics by going up 26% so far this year. The company's good fortune, like that of other mining concerns, comes from rising demand in China. Another great Australian mining company is Rio Tinto (NYSE: RTP), which has a lower valuation because it doesn't have oil and gas operations, which contribute about 30% of BHP's total revenue. Last Bit of Advice The center of gravity for the world's economy is shifting to the Asia-Pacific region, and Australia is in the sweet spot. Keep an eye on housing prices and corporate profit performance, but for now keep some exposure to Australia in your global portfolio.

For more information go to www.chartwellasia.com or call 877-221-1496
About the Author

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of the Chartwell Advisor and the Asia Investor Intelligence newsletters. He served on the executive board of the Asian Development Bank and is the author of The New Global Investor. For more information go to http://www.chartwellasia.com or call 877-221-1496