Australia’s sharemarket is projected to remain subdued for the remainder of the year, with strategists warning that high interest rates, elevated equity prices, and recent government tax reforms are leaving the bourse behind its global counterparts. While international investors have capitalised on the booming artificial intelligence trade, the S&P/ASX 200 Index has recorded a modest 1.2 per cent gain this year. This contrasts sharply with Wall Street’s tech-heavy Nasdaq, which surged 14 per cent, and Japan’s Nikkei 225, up 43 per cent. UBS equity strategist Richard Schellbach noted that global investors are growing impatient with Australia’s economic outlook, finding the ASX 200 “unattractive and uncompetitive” internationally.
Schellbach described the ASX as caught in a tug-of-war. The domestic economy is heavily weighed down, with retail, property, and banking sectors bearing the brunt of the Reserve Bank of Australia’s aggressive monetary tightening and a 4.35 per cent cash rate. Recent federal government tax changes on negative gearing and capital gains further contribute to this drag. Conversely, Australia’s substantial resources sector, nearly a third of the ASX, offers a vital buffer. Global disruptions have provided a tailwind for energy companies, and mining giants BHP and Rio Tinto have recently reached record highs, serving as an indirect play on the global AI boom.
Despite the resources sector’s resilience, Sebastian Mullins of Schroders labelled the local bourse “uninspiring” for global capital, citing valuations in the 98th percentile relative to underwhelming corporate profits. Schroders consequently views Australian equities as its largest underweight. Jason Kururangi from Milford cautioned Australian companies may not have fully absorbed the slowdown from higher rates, potentially leading to future earnings downgrades. However, he noted a 4 per cent market decline made some valuations in healthcare, technology, and banking “more reasonable.” Kururangi suggests softer tax policies and lower borrowing costs are critical catalysts. JPMorgan’s Jason Steed added that the overall index masks a broader bear market, with nearly every sector falling at least 20 per cent from its peak, underscoring the urgent need for broader earnings growth.
