Australia’s benchmark stock market index is up about 10.5 per cent for the calendar year to date. So how does it stack up against Wall Street?
The Australian stock market has proven to be not just resilient during the pandemic, but positively buoyant, although it could not keep pace with “extraordinary “ gains on the bourse it takes its biggest lead from, Wall Street.
The S&P/ASX200 index started the year around the 6660 point level and smashed through fresh records multiple times in June through to August when it peaked at a closing high of around 7630 during the profit reporting season and as all-important iron ore prices were well above $US200 per tonne.
The benchmark index of Australia’s top 200 largest companies has since pulled back to below 7400, but jitters around the Omicron variant have not turned out as bad as first feared.
On Wall Street’s S&P 500 index – widely regarded as the best single gauge of large-cap US stocks – the year opened around 3760 and closed at a new all-time high on Friday of about 4700, shrugging off the highest inflation numbers since 1982 as investors bet on strong company earnings growth in coming quarters.
IG market analyst Kyle Rodda said that’s a gain for the year of about 27 per cent.
“That’s certainly extraordinary by historical standards,” Mr Rodda told NCA NewsWire.
“It’s been a good year for stocks overall, it must be said. Most developed market equities have seen solid returns.
“The ASX200 is currently looking at a roughly 10 per cent gain for the year.
“Nothing to be sneezed at, but we’ve certainly underperformed compared to many other global benchmarks. Especially, of course, the US.
“In short, you can blame that on one overarching factor: China.”
Since those giddy heights reached by the ASX200 in August, slowing growth in China – driven by several factors including changing policy priorities, financial stability risks, and a slow down in the real estate sector – had led to a big drop in demand for iron ore, Mr Rodda said.
That has weighed on our big miners and therefore the ASX200.
“In the meantime, big tech has boomed in the US and that’s driven the tech-heavy S&P 500 to record high after record high,” Mr Rodda said.
The US market has the world’s biggest tech names listed – Amazon, Tesla, Apple, Microsoft and Google-owner Alphabet to name a few – while the ASX only has a handful of much smaller stocks in this growth sector.
OMG chief executive Ivan Tchourilov said the difference in performance between the ASX and other exchanges came down to diversification.
“Looking at the top companies by market capitalisation, we heavily rely on financials and materials in the ASX All Ordinaries,” Mr Tchourilov said.
“Think BHP, Rio Tinto, Commonwealth Bank and Macquarie Group.
“Given Australia’s smaller population compared to other developed economies, a reliance upon exports is expected.
“This does, however, leave us in a poor position to participate in sectors of the future.
“It also puts us at the whim of commodity prices and international relations (China, for example, our leading exporting partner).”
By comparison, Wall Street, with its tech giants such as Meta (formerly Facebook), had enjoyed unprecedented growth in recent years as leaders in technology, Mr Tchourilov said.
“Their products are used globally and are scalable beyond any physical product or commodity.”
So while investors would have been better off with greater exposure to international equities this year on balance, some areas of the Australian market held up well, with a fairly strong domestic economy supporting financials, consumer discretionary and real estate stocks, Mr Rodda said.
“It should be said that iron ore prices have rebounded lately and that’s seen a bounce in mining stocks as speculation grows about stimulus from Chinese authorities to boost growth there, which may augur well for our market in 2022,” he concluded.
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