Australia Lags Behind as US Market Surges to New Heights

For many Australian investors, their portfolios are heavily concentrated in domestic blue-chip stocks. This approach has historically come at a significant cost.

In the last 12 months, the Australian market returned less than 1%, while the US market saw returns of around 20%. Over the last 20 years, the Australian market produced a compound return of 7.2%, whereas the US market returned 11.8% (Vanguard).

The Australian market has consistently underperformed the US market over the past two decades, with the only sustained period of outperformance occurring during the resources boom between 2000 and 2007.

Australia's market is dominated by financial institutions offering attractive dividend yields. Investors view domestic equities primarily as an income source rather than a growth investment. Growth stocks in Australia are scarce, aside from the resources sector, which accounts for a significant portion of the market.

The US Technology sector now makes up 29.2% of the S&P 500 and has been a major contributor to its outperformance over the Australian market. The relative performance of Australia is closely tied to the US Tech sector's performance, with Australia outperforming during the Tech Wreck but underperforming since.

Australia's competitive advantage lies in its resources sector, which accounts for around 25% of the sharemarket. A sustained commodity boom could quickly restore international interest in Australian equities and create a 'double bubble' for investors, where both stock prices and the currency appreciate.