Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 396

What drives Australian versus global equity performance?

Australia’s equity market performance versus global markets has waxed and waned over recent decades. A key driver of relative performance has been global sector performance, in particular, technology versus mining stocks.

Long-run trends in equity market performance

As the chart below shows, Australian relative equity market performance has been through several marked cycles in recent decades. In the late 1990s, the local market tended to underperform. It then enjoyed a sustained period of outperformance from the bursting of the global dotcom bubble in 2000 until the end of the GFC in late 2009. Since the GFC, the local market has once again tended to underperform.

Note, moreover, the swings in relative performance historically have tended to be a bit wider versus unhedged global equities than versus hedged global equities. That’s because when Australian equities have been outperforming, the Australian dollar has also tended to rise. This has detracted from global equity returns in unhedged, $A terms.

By contrast, when Australian equities have been underperforming, the Australian dollar has also tended to fall, which has added to global equity returns in unhedged, $A terms. This is a vital distinction.

Why has Australian relative equity performance shifted over time?

As seen in the chart below, and at the risk of oversimplifying, a major driver appears to be the relative performance of the global technology sector versus the global mining sector. When technology has outperformed (as in the late 1990s and since the GFC), global equities has also tended to outperform. When the mining sector has outperformed (as during the noughties China-driven commodity boom between the dotcom bubble and the GFC), Australian equities has also tended to outperform.

More recent performance: A shift-share analysis

Another more detailed way of understanding relative performance is by undertaking what’s known as a ‘shift-share’ analysis. This deconstructs relative performance into two parts:

  1. Industry effect – whereby Australia's performance is based on our relative exposure to global sectors doing either well or poorly.
  2. Competitiveness effect – whereby our performance is based on the performance of local sectors compared to their global counterparts.

As seen in the table below, over the past year, Australia’s market has been broadly flat whereas global markets (in hedged or local currency terms) have risen a solid 15%.

As at 5 February 2021.

Across sectors, the biggest drag has been technology, due to the industry mix rather than competitiveness effect. In particular, although local tech stocks did even better than their global counterparts (48.8% vs. 42.2%), local performance suffered because our listed technology sector is relatively small by global standards (a market share of 3% vs. 19% globally).

The consumer discretionary sector was also a drag, as this strongly-performing global sector has a relatively small weight in the local market and because local consumer stocks underperformed their global peers (though the latter is also partly a tech story as strongly-performing Amazon is treated as a consumer discretionary stock).

Financials were also a drag as Australia has a relatively high weight in this global sector which has performed poorly over the relevant period). Other notable drags were industrials and health care due to competitiveness effects – our local sector underperformed their global peers. The healthcare drag may reflect the relatively good performance of leading global vaccine companies, and recent strength in the $A which has hurt offshore earnings of local companies like CSL.

Where to from here: technology/growth or resources/value?

Of course, all this begs the question: which will be the dominant global thematic over the next few years? Are we about to enter an inflationary commodity ‘super-cycle’ based on a synchronised rebound in global economic growth, which could expose commodity supply bottlenecks following years of low prices and an under-investment in new capacity? This appears to be the commodity bull case.

Or will the disinflationary global technology boom – largely in place since the GFC – continue to prevail?

My judgement is that the latter, rather than the former, will remain dominant, although commodities/resources could enjoy a short-run post-COVID bounce.

After all, commodity prices have been in a long-term downtrend, which has occasionally been interrupted by the emergence of a new industrial superpower, such as China most recently especially after its entry into the World Trade Organisation (WTO) in 2001. There’s no new industrial superpower on the horizon that will have a similar voracious demand for raw materials.

Meanwhile, the technological revolution, encompassing growth in robotics and the shift to cleaner energy, still appears in its early stages, which could see ever greater efficiency in the use of today’s popular raw materials.

Innovation will also continue to allow corporations to slash costs, which should keep inflation low, much to the misplaced concern of today’s central bankers.

Of course, I’ll be watching should trends prove otherwise. If I’m right, I suspect Australia’s ability to outperform global peers will remain somewhat challenged given our relatively low exposure to technology stocks and higher exposure to financial and resource-related stocks.

 

David Bassanese is Chief Economist at BetaShares, a sponsor of Firstlinks. This article is for general information purposes only and does not consider the investment circumstances or needs of any individual.

For more articles and papers from BetaShares, please click here.

 

RELATED ARTICLES

Trump's US dollar assault is fuelling CBA's rise

To hedge or not to hedge?

Gold remains solid as Bitcoin melts

banner

Most viewed in recent weeks

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

Super crosses the retirement Rubicon

Australia's superannuation system faces a 'Rubicon' moment, a turning point where the focus is shifting from accumulation phase to retirement readiness, but unfortunately, many funds are not rising to the challenge.

Latest Updates

Investment strategies

Why I dislike dividend stocks

If you need income then buying dividend stocks makes perfect sense. But if you don’t then it makes little sense because it’s likely to limit building real wealth. Here’s what you should do instead.

Superannuation

Meg on SMSFs: Indexation of Division 296 tax isn't enough

Labor is reviewing the $3 million super tax's most contentious aspects: lack of indexation and the tax on unrealised gains. Those fighting for change shouldn’t just settle for indexation of the threshold.

Shares

Will ASX dividends rise over the next 12 months?

Market forecasts for ASX dividend yields are at a 30-year low amid fears about the economy and the capacity for banks and resource companies to pay higher dividends. This pessimism seems overdone.

Shares

Expensive market valuations may make sense

World share markets seem toppy at first glance, though digging deeper reveals important nuances. While the top 2% of stocks are pricey, they're also growing faster, and the remaining 98% are inexpensive versus history.

Fixed interest

The end of the strong US dollar cycle

The US dollar’s overvaluation, weaker fundamentals, and crowded positioning point to further downside. Diversifying into non-US equities and emerging market debt may offer opportunities for global investors.

Investment strategies

Today’s case for floating rate notes

Market volatility and uncertainty in 2025 prompt the need for a diversified portfolio. Floating Rate Notes offer stability, income, and protection against interest rate risks, making them a valuable investment option.

Strategy

Breaking down recent footy finals by the numbers

In a first, 2025 saw AFL and NRL minor premiers both go out in straight sets. AFL data suggests the pre-finals bye is weakening the stranglehold of top-4 sides more than ever before.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.