One of Australia’s largest superannuation funds, MLC, suggests the Australian sharemarket is becoming less attractive to investors. Dan Farmer, chief investment officer of MLC, which manages around $150 billion in retirement savings, indicated the fund is “neutral to slightly underweight” the ASX. MLC is a financial services company that offers investment, superannuation, and insurance products. Farmer believes limited value exists outside the dominant banking and resources sectors, and the influx of passive money from rival funds has created a top-heavy and sluggish market compared to overseas counterparts.
Farmer noted that even the local technology sector has underperformed despite the global AI hype boosting US and Asian tech stocks. He highlighted the struggles of smaller ASX companies to attract capital and investor attention needed for scaling up. He ties this to the rise of large passive funds, hindering the ability to gain scale in the smaller capitalisation segment of the Australian market. Consequently, fewer companies are seeking ASX listings, driving private equity buyouts of firms that might have listed publicly two decades ago.
These concerns arise after the S&P/ASX 200 Index underperformed global markets, growing by only 6.8 per cent in the year to December, compared to the S&P 500 Index and Nasdaq’s returns exceeding 20 per cent. Agnes Hong, head of equities at Aware Super, which manages $230 billion, acknowledged the concentration and shrinking pressures on the ASX are not unique to Australia, observing similar trends in the US and UK.
Despite these challenges, Hong noted Australia’s sharemarket, dominated by resources and banking, could offer diversification for global investors heavily exposed to technology firms. She added that Australia remains attractive due to its rule of law and corporate governance, suggesting the Australian market will continue to play a significant role for Australian super funds despite its relative size.
