Investing internationally: the best and worst share markets this year

Investors are flocking to international shares as global stocks leave Aussie companies in their dust. See where we rank in 2023-24.

Aussie shares are well down the pecking order this financial year when it comes to market performance, and may find it hard to climb back up in 2024-25.

An analysis of 20 major stock market indices from around the world ranks Australia near the bottom third, with the S&P ASX 200 index’s growth so far in 2023-24 at 7.2 per cent.

That’s well below the growth of the US, Japan, India, Europe and Britain, and comes at a time more Australian investors are putting more money offshore.

Even the nation’s biggest investor, the $223bn Future Fund, has been increasing its exposure to global shares faster than Australian shares. Its latest portfolio update says it has 27.1 per cent of its assets in global equities, up 4.2 per cent in a year, and 10.1 per cent in Australian equities, up 1.3 per cent.

The performance of Australian shares would have been stronger if dividends were included, as ASX-listed companies pay higher yields, but would still fall short of the global big guns, where tech stocks are the kings.

In the US, the broad S&P 500 index has climbed 19.2 per cent this financial year, while the tech-heavy Nasdaq is up almost 23 per cent. Taiwan’s tech-heavy main index, in which Taiwan Semiconductor Manufacturing Company comprises 52 per cent, has climbed 28 per cent.

IG market analyst Tony Sycamore said the stronger performance of the US market was caused by one huge factor: AI.

“We don’t have the AI stocks, which have really been the primary driver of US equities,” he said.

“Nvidia is up 95 per cent year and is responsible for one quarter of the S&P500’s gains this year.”

Its market cap of about $2.5 trillion was as big as the total capitalisation of Australia’s and Italy’s stock markets combined, Mr Sycamore said.

He said Japan’s Nikkei index had enjoyed a huge run, pushed higher by a weak yen and good corporate profits. Meanwhile, Britain and Germany were benefiting from their central banks getting inflation under control, which could prompt interest rate cuts in the coming weeks.

Higher-for-longer interest rates in Australia would make it tough for the ASX200 index to outperform in 2024-25, with the Reserve Bank no closer to cutting, and last month discussing a potential rate rise rather than a cut, Mr Sycamore said.

“If we do get a rate cut it’s not going to be until the end of the year,” he said.

Chinese demand for commodities should be good for Australian shares, Mr Sycamore said, “but you have BHP playing with Anglo American and its shares fell 3 per cent in one day (last Thursday).”

“BHP accounts for 10 per cent of our index, so when it falls 3 per cent it’s significant.”

Japan has had one of the world’s strongest share markets in 2023-24. Picture: Getty Images

Talaria co-chief investment officer Chad Padowitz said the global tech sector had driven market performance in 2023-24 and this was dominated by the US.

“Another impact is that compared to the US, Australia has much higher levels of variable mortgage rates, meaning the increase in interest rates impacts households and therefore the economy faster, potentially creating more earnings pressure on local companies,” he said.

Mr Padowitz said Talaria was currently seeing opportunities in Japan and Europe – particularly France and Switzerland.

“There are still opportunities in the US but with valuations at all-time highs, there are less and less from our perspective,” he said.

AUSIEX head of product, marketing and customer experience Brett Grant said trading of international exchange traded funds through its platform had surged 7.7 per cent in the March quarter.

“It has never been more important for investors to diversify their holdings across geographic regions and asset classes,” he said.

Originally published as Investing internationally: the best and worst share markets this year