Why our ‘old world’ sharemarket has been a global laggard in 2025

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Investors in Australian shares might feel a bit envious if they tally up how their portfolio has performed this year and compare it with sharemarkets overseas.

With one month to go in 2025, it’s pretty clear the Aussie market has been a laggard. It has not only trailed behind the all-important US market, it’s also notably weaker than markets in Europe, Britain, China and Japan.

The ASX has lagged sharemarkets overseas.

The ASX 200 is up about 5 per cent since the start of the year, well behind returns of more than 15 per cent for markets in the US, the UK and Europe, about 14 per cent in China, and more than 25 per cent for Japan.

To be fair, these numbers don’t include dividends, for which Aussie companies are known for paying in spades, so they probably understate returns a little. But there’s no doubt the ASX has underperformed this year.

So, why’s it happening? Does it matter? And does it tell us anything useful about the economy, or is it just financial market noise?

Perhaps the biggest reason why our market has been softer this year is that it is skewed towards businesses seen as traditional, even “old world”, rather than the tech superstars of Wall Street. But there are other factors that have worked against the ASX this year, including the dwindling chances of future interest rate cuts from the Reserve Bank, our reliance on China when its economy is weak, and a period of weak corporate profits. These have all added up to weaker returns.

Most of the time, the world’s sharemarkets tend to move in similar directions – and they’re usually led by the biggest market in the world, the US.

When you look at what sort of businesses make up these various markets, however, there are some major differences. Perhaps most striking is the role of technology giants. Tech companies such as Nvidia, Microsoft, Apple and Google’s owner Alphabet account for about 30 per cent of the US S&P 500 index. The best-known tech giants – dubbed the Magnificent Seven – have been a dominant driver of high returns in the US for the past few years, turbocharged by artificial intelligence hype.

Our market, in contrast, has a distinctly old-world feel. Financial firms (mainly banks) constitute almost a third of the index and miners account for another 20 per cent or so.

Most of these companies have been around for many decades (Fortescue is a relatively recent mining powerhouse), and they’re generally seen as very solid “blue chip” investments. Our banks churn out reliably strong profits and dividends, while the miners are more volatile, but they tend to do well if global growth – especially in China – is strong.

The ASX has some tech businesses, but in the scheme of things, they are pretty modest: information technology is only about 3 per cent of the ASX 200.

Does this lack of high-flying tech stocks, and a big role for miners and banks, really matter?

It’s meant that our market has received much less of a kick from the boom in AI, even if financials have still done pretty well (up about 4 per cent this year) while materials have jumped more than 20 per cent. But super funds, which now have more of their money in overseas shares than Australian ones, are still expected to make returns close to their long-term average this year.

Being a bit stodgy is not always bad in investing, either. It can be helpful in tumultuous times, because money will flow to perceived safe havens, as occurred around the time of Donald Trump’s “Liberation Day” this year.

Morgan Stanley Australia equity strategist Chris Nicol says that for a while earlier this year, when investors were feeling more risk averse, our market was outperforming. In that sort of environment, highly priced banks can look more attractive to a global investor wanting to put their money where it’s less exposed to Trump’s policies.

But as investors have re-embraced risk since then, they’ve tended to bid up other countries’ shares more than ours.

Aside from investor sentiment, the experts say there’s another simple reason our market has been weaker: Aussie companies have been making less profit. That probably reflects an economy that’s been recovering from cost-of-living woes, as well as weakness in our biggest export market, China. AMP chief economist Shane Oliver says earnings per share for the market have been soft for the past three financial years.

Perpetual head of investment strategy Matt Sherwood says projections of earnings per share growth over the next year are also pretty soft for the ASX, and yet share prices are relatively high. “The Australian sharemarket is expensive relative to its own history, and relative to comparable markets such as the US and Europe,” he says. “You’re paying high prices for low earnings growth.”

A similar debate has been playing out over individual stocks this year – notably the market’s biggest, CBA. It’s a well-run bank, sure. But is it really worth the $300 billion value it hit earlier this year? Given CBA shares have fallen about 20 per cent from their peaks, many in the market seem to think there’s better value elsewhere.

The CBA share price debate has this year also reignited a long-running discussion about whether it’s a good thing that so much of our sharemarket is heavily concentrated in a relative handful of giants such as the banks and the miners, all of which are exposed to their own industry-specific risks.

Even though it’s been a less stellar year for the ASX than other markets, however, some are betting we’re due for a rebound. UBS strategist Richard Schellbach last week predicted 2026 would bring the strongest earnings per share growth for the ASX200 in four years, helped by stronger profits for the miners.

What’s more, there’s an argument our solid if slightly unexciting sharemarket would fare better if it does turn out that Wall Steet is caught up in an AI bubble, as some fear.

Schellbach says that’s what happened in the aftermath of the early 2000s tech wreck, when Wall Street collapsed but the ASX had a far more modest fall. Sometimes the mining and bank-heavy ASX can beat its tech-heavy peers – but it hasn’t been the case this year.

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