Mark Lister, 30 July 2019

The Australian sharemarket reached a milestone this week, with the ASX 200 index finally surpassing its 2007 peak.

All sharemarkets declined in the wake of the global financial crisis (GFC), but some have recovered more quickly than others.

The S&P 500 index in the US regained its 2007 peak six years ago, and has since gone on to rise another 93.0 per cent. Similarly, the NZX All capital index surpassed its pre-GFC highs in 2016, and is currently sitting 52.0 per cent above those levels.


ASX 200


It’s probably a bit unfair on the Australian market to compare it to the US and New Zealand, which have been two of the standout regions in terms of returns. When we look at other markets around the world, Australia doesn’t look too bad at all.

European shares remain 5.5 per cent below the levels they reached back in 2007, while Japanese and Emerging Market shares are 17.6 per cent and 21.9 per cent lower respectively.

We should also include dividends when comparing different markets, particularly for regions where income is a significant component of investor returns. This includes New Zealand, Australia and the UK, all of which offer gross dividend yields of 3-5 per cent per annum.

When we include dividends (by using the ASX 200 Accumulation index), the Australian market is 68 per cent above its 2007 peak. In a similar vein, US shares are 148 per cent higher and the local market leapfrogs its American counterpart to top the table with a 166 per cent return.

The UK also improves substantially, with the FTSE 100 index 79 per cent above the pre-GFC peak, compared with just 14.2 per cent for the capital only variant.

There are a number of reasons the Australian market has lagged New Zealand and the US over the past ten years. One factor has been the makeup of the market itself. More than 55 per cent of Australian sharemarket is comprised of financials, materials and energy shares.

These sectors have faced challenges at various times in recent years. The banks have grappled with increasing regulatory scrutiny and falling house prices, while the mining and energy sectors have followed the fortunes of the volatile Chinese economy and commodity prices.

In contrast, the US is a much more diversified market to begin with, with the biggest sector being information technology, at almost 22 per cent of the S&P 500 index. Technology shares have performed incredibly well, having risen more than 120 per cent over the last five years.

As far as New Zealand goes, you could say we have been in the right place at the right time. Defensive companies that pay steady dividends dominate the NZX, and a high proportion of listed property, electricity companies and infrastructure businesses has seen our market perform incredibly well as interest rates have fallen to record lows.

The Australia economy still faces some challenges. The reliance on China is high, consumption remains soft following house price declines in recent years, the banks continue to face headwinds, and the political backdrop is still somewhat testing.

However, the ASX is home to some genuine world class businesses. Many of these have been exceptional performers in recent years, and the outlook remains very encouraging.

Examples include infrastructure companies like APA Group, Sydney Airport and Transurban, as well as healthcare heavyweights CSL, Ramsay Health Care and Resmed. There are also a number of high quality businesses operating on a global scale, such as Amcor.