The Australian sharemarket has slipped into negative territory for the year, contrasting sharply with Wall Street’s record highs, driven by renewed interest in artificial intelligence stocks. This divergence could offer a strategic opportunity for the S&P/ASX 200 Index. Global investors may soon rotate funds from high-performing markets like the US to underperformers such as Australia, to maintain benchmark portfolio weightings. IG analyst Tony Sycamore suggested this rebalancing “could easily act as a headwind for US stocks and provide a cushion for the ASX 200.”
The ASX 200 fell 0.6 per cent on Tuesday, extending its losing streak and erasing earlier year-to-date gains. The market was notably pulled down by heavy selling in healthcare. Hearing implant company Cochlear, which designs and manufactures hearing solutions, is down over 60 per cent year-to-date. Blood plasma giant CSL, a global biotechnology company producing vaccines and plasma therapies, is off nearly 25 per cent. Higher domestic interest rates also dampened sentiment across technology, retail, and real estate.
Conversely, the US sharemarket has climbed for four consecutive weeks, driven by the robust artificial intelligence trade. The S&P 500 Index is up nearly 10 per cent for April, significantly outperforming the ASX 200’s 2.9 per cent gain. Strong earnings from Intel helped alleviate concerns regarding AI’s substantial capital expenditure. Other global markets also show strong performance, with South Korea’s Kospi index surging almost 60 per cent and Japan jumping about 20 per cent, highlighting Australia’s relative lag.
Pinnacle Investment Management’s David Wright suggests this forced rebalancing by major funds will offer a “welcome sugar hit” to the ASX, calling it a “classic ‘sell high, buy low’ move.” However, he cautioned that momentum-chasing retail investors could partially offset this effect. Alphinity Investment Management’s Elfreda Jonker added that Australia faced unique challenges, with the RBA already raising rates due to persistent inflation. Consumer confidence was fragile and spending contracted even before broader geopolitical and inflation risks emerged.
