Going Down Under to protect portfolios increases in popularity
18 September 2025
With stagflation fears resurfacing in the US, global investors are scanning the horizon for alternative investment destinations. Increasingly, they are looking to Australia.
By some measures, US equities are now more expensive than they were in the late 1990s, an era that ended in painful collapse.[1] For investors worried by stretched valuations in the US, the Australian market could offer a diversified, resilient alternative.
In 2022, when global inflation peaked and central banks pushed through the sharpest tightening cycle in a generation, the ASX 200 fell just 6% — compared with a 19% decline in the S&P 500 and a 33% collapse in the Nasdaq.[2] That relative resilience reflects the composition of the market: banks and miners still dominate, but healthcare has grown from 5% to more than 10% of the index in the past decade, while information technology, once negligible, is now 3-4%.[3]
Some of the world’s biggest investors rotated into Australian equities earlier this year to add a buffer to their global portfolios: foreign institutional investors poured a net A$800m into Aussie bank stocks in the first quarter, according to a Macquarie analysis.[4]
For investors seeking to reposition, equity-backed financing offers a means to unlock liquidity and rotate into Australian blue chips without sacrificing long-term exposure elsewhere.
The lucky (and increasingly diversified) country
One of Australia’s advantages is that it has been slowly but surely marching to its own beat. To be sure, US equities and developed market indices like the ASX 200 do exhibit moderate correlation.[5],[6] However, tentative signs of decoupling are emerging.
The Australian dollar — traditionally a proxy for global risk appetite — has lately moved out of sync with the US dollar, strengthening even as US stocks have sold off.[7] It suggests that Australia’s market dynamics are increasingly driven by domestic fundamentals and regional demand.
Banking, healthcare, retail, technology and services make up a broad base of domestic-focused equities.[8] ASX industry concentration over the period December 2016 to December 2024 has also declined.[9]
There are structural supports, too. Australia’s pension system is among the largest in the world.[10] Superannuation or pension fund assets totaled A$3.8 trillion (145% of GDP) in 2024, with 46% of the portfolio in equities — one of the highest allocations among OECD countries.[11] After several years of rising allocations to global equities, a home market bias could return, especially in private assets and real estate that could eventually benefit local equities [12],[13]
At the same time, foreign investors have substantially increased their holdings of Australian listed equity over the past decade, accounting now for a third of ASX’s total market capitalization.[14] Unlike many other exchanges in Asia, Australia’s depth and diversity offers a form of natural insulation from global uncertainty.
Even so, the market faces a test. The latest US tariffs could shave as much as A$27 billion from Australian exports, equivalent to about 1% of GDP.[15] Direct exposure, however, is limited: the US takes in only 5% of Australia’s total goods exports.[16]
Some Australian goods may even benefit, gaining share against substitutes from Canada, Brazil or New Zealand that face higher tariffs.[17] This recalls the first Trump trade war in 2018–19, when Australian equities endured bouts of volatility but proved more resilient than expected.[18]
To be sure, Australian equities can swing dramatically in response to US market moves. But Australia avoided a full tilt into tech during the late-1990s dot‑com mania, with its market more anchored in banks, resources, and other defensive sectors. During the dot‑com crash of 2000–2002, the ASX 200 experienced a drawdown of around 22%, with full recovery achieved in roughly three years, a faster bounce‑back compared to tech‑heavy US markets.[19]
Looking forward, Australia, however, should be able to make a claim that it can be something of a defensive play.
Of course, Australia is not the only alternative investment destination on the map. Investors have other options: Japan, defensive US sectors, gold, and, increasingly, China. But for investors seeking opportunities among developed market equities, Australian equities make a strong case.
For global investors, the ability to access this theme efficiently is as important as the theme itself. Equity-backed financing provides precisely that — a way to unlock capital tied up in existing holdings and diversify into new opportunities without forced selling.
In a world of decoupling and fractured trade, going “Down Under” looks less like a retreat and more like a proactive strategy to protect — and potentially enhance — global portfolios.
[1] https://www.wsj.com/finance/stocks/stock-market-valuation-highs-ac291e72
[2] https://www.morningstar.com.au/stocks/morningstars-best-and-worst-asx-performers-of-2022
[3] https://www.asx.com.au/blog/investor-update/2024/best-and-worst-performing-sectors
[4] https://www.reuters.com/business/finance/australias-stocks-shine-global-money-seeks-us-alternatives-2025-05-08/
[5] https://www.indexologyblog.com/2023/06/05/connecting-the-sp-asx-200-to-u-s-equity-icons/
[6] https://www.smartinvest.co.nz/news-and-insights/a-closer-look-at-the-smart-australian-top-200-etf
[7] https://www.reuters.com/markets/currencies/aussie-is-losing-its-way-markets-risk-compass-2025-04-02/
[8] https://download.asic.gov.au/media/aprml05w/rep807-published-26-february-2025.pdf
[9] https://www.indexologyblog.com/2020/04/15/pandemic-accelerates-long-term-shifts-in-australian-equity-market-health-care-reigns-supreme
[10] https://www.investordaily.com.au/superannuation/56616-aussie-pension-market-on-track-to-become-a-global-leader-by-2030
[11] https://www.investmentmagazine.com.au/2024/02/australia-tops-charts-for-pension-assets-to-gdp-growth-ratio/
[12] https://www.superreview.com.au/news/superannuation/australiansuper-calls-policy-certainty-boost-local-investment
[13] https://www.ft.com/content/b9f1872b-916c-4d4a-84d9-26ba1a7b702d
[14] https://www.rba.gov.au/publications/bulletin/2022/mar/images/graph-0322-8-11.svg
[15] https://www.theguardian.com/business/2025/apr/03/trumps-tariffs-could-deliver-a-27bn-blow-to-australia-and-the-cost-of-a-global-trade-war-would-be-far-higher
[16] https://www.abs.gov.au/articles/australias-trade-united-states-america
[17] https://www.reuters.com/world/asia-pacific/australia-eyes-more-us-exports-trump-holds-tariffs-10-2025-08-01/
[18] https://www.marketindex.com.au/news/as-liberation-day-looms-how-did-the-asx-200-perform-during-trumps-2018-trade
[19] https://www.betashares.com.au/insights/worried-about-market-volatility
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