By Luke Kinsella
Australia’s sharemarket may have climbed above 9000 points for the first time ever this year, but it’s still lagging the rest of the world because of its lack of exposure to artificial intelligence and a global shift back into the emerging markets.
The S&P/ASX 200 has returned 8 per cent so far in 2025, which places the local bourse at the back of the pack with India, France and Switzerland and ranks it 22nd out of the world’s 30 major stock markets.
Wilson Asset Management’s Anna Milne said the ASX’s heavy exposure to “old world industries” like materials and financials (which account for roughly half of the benchmark) were to blame.
“When there are big world shifting events, such as AI, those are certainly the industries that benefit less,” she said. “We just haven’t seen the valuations of the large caps doubling like some have seen offshore.”
Even so, the ASX 200 is still having a strong run by historical standards, beating its 10-year average annualised return of 6.2 per cent. A rotation back into the mining sector and the prospect of interest rate cuts helped propel the gauge to a record high in August.
It has since trimmed some of those gains after a volatile earnings season and as investors booked profits in the banking sector.
“The ASX is already considered quite expensive, partly due to the ongoing money flows from our superannuation system,” Milne added. “The depth of capital in Australia has sent valuations higher over the decade.”
Several global sharemarkets reached record highs this year – including the US, the world’s biggest and most influential – as investors ride the wave of investments into AI, falling interest rates and warning fears that US tariffs will trigger a global recession.
The ASX dropped 7 per cent in April after President Donald Trump’s so-called ‘liberation day’ tariff shock triggered a global market rout that erased trillions of dollars in value.
Milne added the Reserve Bank of Australia’s more conservative approach to lowering interest rates, which included surprising the market in July by keeping the cash rate on hold, had also capped the ASX’s gains.
“Lower interest rates are generally correlated to lower discount rates, which increase valuations of all risk assets, including the sharemarket,” she said.
The ASX’s performance compares to double-digit returns in the emerging markets, turbocharged by the Federal Reserve cutting interest rates and a weakening US dollar.
Antipodes’ emerging markets portfolio manager John Stavliotis said strong growth in countries like Vietnam, Mexico and Brazil was part of a “broadening of investments across the world”.
“The weakening US dollar is a strong tailwind for emerging market returns, particularly in ASEAN, where these countries are always fighting against capital flight when the dollar is strong and US rates are high,” he said.
By comparison, Stavliotis said the ASX 200 was considered a “crowded market” trading at over 20 times earnings, well above its historical average.
Vietnam’s sharemarket was the best performer out of the list of 30 after soaring 57 per cent in just 10 months. Stavliotis said the country was exiting a housing market slowdown and a costly anti-corruption campaign.
“You find that with a lot of these smaller ASEAN countries, the political environment can have a big impact on market moves,” he said.
South Korea’s KOSPI Index came in second, jumping 43 per cent in 2025 helped by a recent shift in South Korean business culture to focus on shareholder returns, spearheaded by new president Lee Jae Myung.
Shares of tech giant Samsung, which makes up 15 per cent of the South Korean index and nearly halved in value in 2024, have rocketed 50 per cent following a deal with Tesla to produce chips for its self-driving cars.
Northcape Capital’s Ross Cameron, which runs a $7.4 billion emerging markets fund, named South Korea as “one of the most interesting and exciting investment scenes globally”.
“Korea is the cheapest equity market globally relative to the quality of companies … it was always the corporate governance that held it back,” he said, before adding that Samsung was still “dirt cheap”.
“Emerging markets are back,“ Cameron added, with countries like Brazil, Mexico and South Korea among the main beneficiaries.
US equities have “been a great trade because you’ve made money on the currency and the stocks, but now the stocks look super expensive, and the currency has actually turned into a headwind,“ he added.
On the other end of the scale, Denmark’s OMXC 20 recorded the sharpest losses, falling 23 per cent this year, dragged lower by its two largest multinationals – pharmaceutical giant Novo Nordisk and energy company Orsted.
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