The Australian sharemarket has undergone a significant transformation over the past twelve months, marked by a clear investor preference shift from virtual, intangible assets to physical, hard assets. This trend is starkly illustrated by a hypothetical investment: $100 placed in ASX mining stocks at the year’s commencement would now be worth $146, whereas the same amount in technology stocks would have dwindled to $63, a substantial $83 swing favouring the resources sector. This divergence is primarily attributable to an unprecedented surge in artificial intelligence infrastructure spending, which is vastly exceeding expectations and fueling demand for hardware and materials.
The incredible ramp-up in AI capabilities has simultaneously induced major panic among large software stocks constituting the ASX’s technology sector, such as WiseTech, Xero, and REA. Consequently, hundreds of billions of dollars previously tied up in capital-light software companies have been reallocated, funding potential disruption. This global phenomenon sees mega-cap tech companies investing heavily in infrastructure, even borrowing money or raising fresh equity, as demonstrated by Alphabet, in pursuit of winning the AI arms race. The preference for physical assets also manifested in commodity markets, with gold prices gaining 16 per cent over the year, while Bitcoin’s value halved, reflecting a consistent dumping of digital alternatives.
Despite global stocks, as measured by the MSCI World index, being on track for a 15 per cent gain in Australian dollar terms, the ASX has experienced a relatively lacklustre twelve months, delivering a broader market return of just 2.8 per cent. While mining and energy stocks enjoyed a strong run, this was significantly offset by the sharp decline in technology shares and a challenging year for healthcare stocks, including Cochlear and CSL. The financial sector, which had powered the ASX to near double-digit returns in the previous financial year, could not sustain its momentum and is now facing increased short interest amid anticipated challenges. This complex environment, compounded by inflation concerns and geopolitical factors, sets a tricky stage for the upcoming financial year, leaving fund managers with a significant task to repair their numbers.
