Aussie stocks have been only half as good as US shares: here’s why

Comparing Australian sharemarket returns with the US can be deflating, and there’s one big reason for the smackdown.

If you’re feeling pumped up about our sharemarket’s record-breaking rise in recent months, the next couple of minutes might prick your balloon.

Aussie stocks have put last year’s Covid crash behind them to surge to fresh highs, jumping 54 per cent in just 18 months, despite slipping back a few per cent since mid-August.

Longer-term, they’re looking good too. Over the last decade the S&P ASX 200 index has jumped 84 per cent. And if you add dividends to the mix, total ASX returns are up 141 per cent since September 2011.

Most investors would be happy with this, as long as they don’t look at what has happened in the US stockmarket in the same period. US shares have performed almost twice as well – up 272 per cent over the decade.

Its big-name stocks have done even better. Amazon, Apple, Google’s parent Alphabet, Microsoft and Facebook have each increased at least 10 times in value. And don’t bother trying to count how many times the share prices of Netflix and Tesla have multiplied.

The bulls have been running hard in the US stockmarket. Picture: Daniel Acker/Bloomberg

But wait, there’s more. Non-tech stocks such as Nike, American Express, Visa and McDonalds have all at least trebled, and even Boeing shares – suffering from the pandemic – are still worth three times more than they were a decade ago.

The US market is the world’s biggest and there is always more interest in US stocks, but that’s not the real reason why we’ve been smashed by Wall Street’s finest.

The reason is profit. Just like it has always been for investors everywhere.

Sharemarkets love to take investors on stomach-churning rollercoaster rides as fear and greed impact short-term price movements.

But share prices ultimately reflect fair value – and that’s usually based on a company’s current or future profit.

Large, growing profits means large, growing shares prices. Falling profits do the reverse, and while there are plenty of stocks doing well without making any profit, they eventually need to pull their weight.

Profit is why I’m not a big fan of cryptocurrency, gold and other assets that don’t grow their earnings or income payouts over time.

Apple, Alphabet and Amazon profits multiplied several times since 2011, while Australia’s overall corporate profits are up about 69 per cent.

But rather than dwell on the past, it’s better to take a glass-half-full approach by looking to the future.

Australia doesn’t have the tech giants to rival the US. Nobody does. And when one of our tech stocks becomes a giant, like Afterpay did, it quickly gets snapped up by a bigger US giant in a takeover.

What Australia does have is massive potential heading into the world’s next mega trend – renewable energy and carbon-free industry.

We have abundant land, sunlight, wind and raw materials, all ingredients to fuel the coming boom as countries switch to zero-carbon.

We have businesspeople who plan to become global leaders in areas such as green steelmaking. Billionaire Andrew Forrest is pumping millions into plans to use Australia’s abundant iron ore reserves to make steel without burning any fossil fuels.

There are separate plans to send Northern Territory solar energy along a 3700km undersea cable to power all of Singapore.

Global pressures will create more opportunities like this.

And perhaps, then, Aussie stocks might give Wall Street a run for its money.