The top global stockmarkets for investors as the ASX lags behind
Local investors are pouring more than $1bn a month into global shares as overseas markets outpace the ASX. Experts reveal their top offshore investment picks.
Going global has been a huge trend for sharemarket investors in recent years. More than $1bn each month is flowing into direct shares and exchange-traded funds focused on international stocks.
The US has been the main magnet for investors’ money, largely thanks to the stellar share price growth of the so-called Magnificent Seven tech giants – Apple, Alphabet (Google), Amazon, Meta, Microsoft, Nvidia and Tesla – but they are not the only international success stories. There are also opportunities in Europe and Asia, so which offshore markets should investors target?
A majority of the 20 largest ETFs in Australia today focus on international markets, including two of the top three. In October alone, $1.9bn flowed into international equity ETFs, and overseas-focused brokers report surging turnover.
As for where to invest, there are regions within regions, analysts say. For example, within Asia some favour Hong Kong while others prefer Japan. This complexity is prompting many investors to take a broad, diversified approach to investing internationally.
Most overseas markets have enjoyed better growth than here in Australia, with their gains dwarfing the ASX 200 index’s modest 4.5 per cent return.
Even accounting for recent weakness, European shares are up 11.4 per cent, US stocks 12.3 per cent, and London 16.7 per cent. Asian markets have fared even better, with Hong Kong up 27.9 per cent, Japan up 21.9 per cent and China up 14.1 per cent.
A new report by Morgan Stanley said its strongest preference was for US shares, followed by Japanese shares, then European shares, noting that all were expected to outperform Australia.
It said 2026 should be a “strong year for risk assets, powered by micro fundamentals, accelerating artificial intelligence capex, and a favourable policy backdrop”.
“Equities are now the preferred asset class, with a strong preference for US assets,” the report said.
Morgan Stanley pointed out that while US shares trade at a premium to other international shares, this was justified by its “attractive structural tailwinds and relative earnings strength”.
Janus Henderson Investors portfolio manager Julian McManus preferred Europe’s outlook at the moment, and said there was reason to believe it was “just getting going”.
“Shifting trade policies and geopolitical tensions are leading more governments to roll out fiscal stimulus,” said US-based Mr McManus.
“Defence spending in Europe, for example, has been rising since the Russia-Ukraine war began in 2022 and could be set to dramatically increase.
“European banks also look well positioned. These companies have spent years building capital reserves that now are being returned to shareholders in the form of dividends and share buybacks.
“For investors with little or no exposure to the region, we believe now may be the time to reallocate.”
Moomoo market strategist Michael McCarthy said the lack of tech listings in Australia had driven investors to look overseas for attractive, high-growth companies.
Mr McCarthy said he preferred Hong Kong stocks at the moment as many had “high-growth profiles, good reach and productivity potential through AI, and their valuations are much less stretched than the US”.
“For people concerned about their exposure to those very glamorous US stocks, the Hong Kong market makes sense,” he said.
However, current market weakness was a worry, said Mr McCarthy, who joked he had “called seven of the last two pullbacks in the market, so take what I say with a grain of salt”.
“We have got bubble characteristics here – exponential price action, a version of the ‘it’s different this time’ argument, and now we have got a blow-off top (a technical chart pattern showing a steep rise then fall). They’re the three elements that traders look for when a bubble is bursting, and they are present right now.”
Baker Young managed portfolio analyst Toby Grimm said the best growth on offer was “still in the United States”.
“Their companies are delivering higher earnings per share growth than pretty much any other region, and that’s unlikely to change for the short to medium term,” Mr Grimm said.
He said the rise of Australians investing globally reflected “growing financial literacy, more information available, more coverage of overseas companies and the benefits of diversification, and the transparency and ease with which Australian investors can get exposure via ETFs”.
He said investors should work out whether they wanted to speculate on a particular country or region, or try to build long-term wealth by diversifying.
“There are ETFs that give you exposure to more than just one geographical region – the top 100 companies globally, for instance,” he said.
“It’s another way to play international shares without having to back that regional risk.
“As much as ETFs can be seen as a competitor to us, and certainly me who manages portfolios, the truth of the matter is they are a great tool for a lot of retail investors because they enable very low-cost diversification, and they take a lot of worry out of the decision making, accounting and tax processes.”
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