ASX gains dwarfed by US stocks, but we’ll still feel the pain of a fall

Bull market? What bull market? Aussie stocks haven’t done much in 14 years but here’s why you should prepare for the bad times.

Wall Street’s bulls have been charging in recent years. Picture: AP/Mark Lennihan

I was slightly freaked out this month when an email landed in my inbox declaring how far we are into a sharemarket bull market.

The message, from Sydney-based Insync Funds Management, said “this bull market is a big one” and that we’re heading towards the final phase where optimism turns to euphoria, interest rates rise and price moves could herald a major slump or bear market.

What freaked me out was the idea that Aussie stocks are in a bull market, yet the combined value of the top 500 companies listed on the ASX is just 14 per cent more than it was in 2007 – and 14 per cent growth in 14 years doesn’t sound too bullish to anyone.

I quickly discovered that Insync operates global funds so its views are global, which is dominated by US stocks that most definitely are in a bull market.

When the US market drops sharply in the future, it’s likely to pull down the rest of us, even though we haven’t shared in its huge growth as tech companies such as Apple, Amazon, Alphabet (Google) and Microsoft became mega-giants.

New York’s famous bull statue on Wall Street is a strong symbol of the mood in the US.

It’s interesting to look at different countries’ sharemarket index growth since November 2007, which was just before the GFC:

• Australia’s All Ordinaries has climbed about 14 per cent.

• Britain’s FTSE 100 is up 17 per cent.

• France’s CAC 40 has added 27 per cent.

• Japan’s Nikkei has risen 66 per cent.

• Germany’s DAX is up 100 per cent.

• China’s Shanghai Composite has dropped 30 per cent, while its Hang Seng index in Hong Kong is down 17 per cent.

• In the US, the Dow Jones is up 174 per cent, the broader S&P 500 index has climbed 222 per cent, and the tech-focused NASDAQ a whopping 476 per cent.

Australia sits well in the bottom half of those performers. However, the figures don’t include dividends, and Aussie stocks are good dividend payers, which pushes up our relative returns but still nowhere near the US growth numbers.

Some respected commentators say the US is heading for massive crash, while many analysts say it’s overvalued but believe there’s nowhere else worthwhile to put your money.

When the inevitable correction or crash comes, cash will become king again but today you get a zero returns from cash. And you don’t want to be overexposed to the other big conservative asset class, bonds, which will deliver negative returns in the years ahead as rising interest rates push their values down.

Property prices are also booming so it’s hard to find bargains there, cryptocurrency is the craziest rollercoaster you’ll ever ride, and investing in commodities can be just as confusing.

When the global bull market becomes a bear market, Aussie investments will suffer, but trying to time this is almost impossible.

US stocks have reached record highs in every year of the past decade, and some Aussie brokers are currently reducing their investments here while increasing offshore exposure where they see better opportunities.

The best option for everyday investors and super fund members is to diversify their money across asset classes and geographies.

When Aussie shares do slump, hopefully our lack of a bull market so far will keep the bears from biting too hard, but we must be ready to accept some financial pain.

Originally published as ASX gains dwarfed by US stocks, but we’ll still feel the pain of a fall