Is the Australian share market uninvestable?  

Over the 10 years to 31 August 2026, the Australian share market, measured by the S&P/ASX 200 Accumulation Index, returned approximately 9.4% p.a., including dividends. Over a similar period, global developed market shares, measured by the MSCI World Index in Australian dollars, returned around 14% p.a. 

Australian shares have delivered solid past returns, although they have lagged global markets. However, much of Australia’s performance has been driven by banks and resource companies. Both sectors have already enjoyed substantial gains and now face their own challenges. The problem is that there are few other sectors large enough to drive the market’s next phase of growth. 

Of course, what matters most is future returns, not past performance. In this blog, I’ll explain why we believe the Australian share market is structurally less attractive than other developed markets, and why investors should consider directing more of their future investments offshore. 

The ASX 200 is really a bet on banks and miners  

Financials, predominantly the major banks, account for 33% of the S&P/ASX 200, while materials, mainly the large mining companies, make up another 27%. Together, these two sectors represent 60% of the entire index! Just four banks, CBA, Westpac, NAB and ANZ, account for almost 25%, with BHP adding another 10.6%. 

This makes the Australian share market unusually concentrated. The 10 largest companies account for 50% of the ASX 200, compared to just 28% for the MSCI World ex Australia Index. 

To make matters worse, Australian shares are not particularly cheap. The ASX 200 trades on a forward price-to-earnings (P/E) ratio of around 19 times, which is relatively expensive by historical standards. By comparison, global shares trade around 18 times. 

CBA is a good example. It represents more than 10% of the Australian index and trades on a P/E ratio in the mid-20s, despite growing its cash profit by just 7% in FY26. Compare that to Google’s parent company, Alphabet, which trades on a similar P/E ratio but has grown its profit by more than 30%. In other words, investors are paying a similar price for two businesses with very different profit growth. 

Mining companies face a different challenge. Their earnings are heavily influenced by commodity prices, and much of the demand for Australian resources comes from China. This means their profitability depends on global economic conditions and commodity cycles, factors largely outside their control. 

Why does Australia produce so few globally competitive businesses?  

Australia is rich in natural resources, but much of what we do is dig them out of the ground and export them. Other countries, particularly China, take our raw materials and turn them into steel, machinery and consumer goods, capturing much of the additional value and profit along the way. We have the resources and wealth to develop more of these industries ourselves, but for the most part, we haven’t. 

This is reflected in Australia’s economic complexity. Harvard’s Growth Lab ranks Australia 74th out of 145 countries on its Economic Complexity Index, which measures how diverse and sophisticated a country’s exports are. Australia ranks second lowest in the OECD, despite being one of the world’s wealthiest countries. 

This matters for investors because the share market reflects the structure of our economy. Australia has relatively few large companies producing sophisticated, high-value products and services for global markets. As a result, investors have limited opportunities to participate in the types of businesses that are driving growth in other developed economies. 

Are high dividends coming at the expense of future growth?  

Another problem is that many of Australia’s largest listed companies distribute most of their profits to shareholders, rather than reinvesting them for future growth. 

Consider the banks. In their latest full-year results, CBA distributed 77% of cash profit, NAB 73% of cash earnings and Westpac 76% of statutory profit. But this isn’t unique to banks. BHP distributed 72% of underlying profit in FY26, while Wesfarmers has historically distributed around 80% of earnings. 

One reason is Australia’s dividend imputation system. Franking credits allow shareholders to receive a tax credit for company tax already paid, making dividends particularly attractive to Australian investors. 

Of course, paying dividends is not necessarily a bad thing. If a company does not have attractive opportunities to reinvest its profits, returning that money to shareholders is the right decision. But that’s precisely the concern. High dividend payouts may reflect the relatively limited growth opportunities available to many of Australia’s largest businesses. 

There are exceptions. CSL, Goodman Group and Aristocrat, for example, have historically retained a greater proportion of their earnings to fund innovation, acquisitions and international expansion. But these businesses are relatively uncommon among Australia’s largest companies. 

The banks certainly have the financial resources to innovate. CBA alone earned almost $11 billion in cash profit in FY26. The Australian banks have invested heavily in technology. But much of this investment has focused on improving existing services, increasing efficiency, protecting customers and meeting regulatory requirements. 

By contrast, companies such as Stripe, Wise and Adyen have developed entirely new global financial services businesses, often by challenging services traditionally provided by banks. Even Australia’s Afterpay emerged outside the major banking sector. 

Improving an existing business can protect profits, but developing new products and expanding into new markets can create entirely new sources of growth. Australia’s major banks have been much more successful at the former than the latter. 

This highlights a broad problem with the Australian share market. Our largest companies are generally very good at generating and distributing profits, but there are relatively few businesses capable of reinvesting substantial amounts of capital to create new sources of long-term growth. 

Australia’s oligopolies: limited competition may cap future returns  

As the saying goes, “Necessity is the mother of invention.” Perhaps one reason Australian companies tend to be less innovative than their international counterparts is that they simply do not have to be. And I suspect a lack of competition has something to do with that. 

Many Australian industries are dominated by just a handful of large companies. Think banking, telecommunications, supermarkets, airlines, energy retailing and insurance. When competition is limited, there’s less pressure to innovate, improve services or lower prices. 

Supermarkets are a good example. In March 2025, the ACCC released an inquiry that found Australia’s supermarket industry is highly concentrated, with limited incentives for Coles and Woolworths to compete aggressively on price. Woolworths controls around 38% of supermarket grocery sales, Coles 29% and ALDI 9%. The ACCC also found that Australia’s major supermarkets are among the most profitable in the world. 

For investors, this concentration has historically been beneficial. Limited competition can support higher profit margins and reliable dividends, which have contributed to past share market returns. 

But there’s a downside. When companies do not face strong competition, they have less incentive to innovate or become more efficient. High profits also attract regulatory scrutiny, as we’ve seen with the supermarkets. 

My concern is that businesses relying on limited competition to protect their profits may struggle to deliver the same returns in the future. 

Ultimately, share price growth comes from two sources: increasing profits and/or investors being willing to pay a higher valuation for those profits. But significantly growing earnings is difficult in mature industries, particularly when there’s limited opportunity to expand. And when earnings growth is weak, investors are generally less willing to pay high valuation multiples. 

That’s an unattractive combination: modest profit growth and little prospect of higher valuations, or even the risk of valuations falling. Both point towards lower share price growth in the future. 

Is Australia missing out on the technology revolution?  

Technology companies account for just 2% of the S&P/ASX 200, compared to around 40% of the S&P 500 in the US. Australia has some successful technology businesses, including WiseTech, Xero, TechnologyOne and NEXTDC, although many trade on relatively expensive valuations. However, the sector is simply too small to have a meaningful impact on the Australian share market’s overall returns. 

Compare that to global share markets, where companies such as NVIDIA, Apple and Microsoft are among the largest holdings. These businesses are at the forefront of technological innovation and AI and have enormous global markets in which to grow. 

Of course, technology is likely to be the biggest drivers of economic growth over the coming decades. That doesn’t mean every technology company will be a good investment, particularly if valuations are too high. But investors who invest in Australian shares have very little exposure to this growth opportunity. For long-term investors, I think that’s a significant disadvantage. 

Why doesn’t Australia produce more successful startups?  

In my view, Australia’s business environment does not do enough to encourage entrepreneurship, innovation and the growth of new businesses. 

For example, Australian banks are reluctant to lend to startups and small businesses unless the owners can offer residential property as security – even then, it’s difficult. This favours someone who owns a home over someone with a great business idea but no property.  

I also think Australian culture is less accepting of entrepreneurial risk and failure than American culture. In the US, failure is often regarded as a valuable learning experience, whereas Australians are more inclined to favour financial security and established career paths, and our tall poppy syndrome can discourage people from pursuing ambitious ventures. 

Our tax system doesn’t help either. Individuals benefit from progressive income tax rates, meaning their first dollars of income are not taxed. Companies do not receive the same benefit. An eligible small company pays 25% tax from its first dollar of profit, while larger companies such as CBA pay 30%. 

Capital gains tax is another concern, particularly for entrepreneurs. From 1 July 2027, the government will replace the 50% CGT discount with cost-base indexation and introduce a minimum tax rate of 30% on relevant capital gains. However, it has also increased the turnover threshold for the small business 50% active asset reduction from $2 million to $10 million. This creates an interesting problem. 

When someone starts a business from scratch, their shares typically have a negligible cost base, so indexation provides no benefit. If they qualify for the small business concession, their effective CGT rate could be as low as 23.5%. 

But if their business grows beyond the $10 million turnover threshold and they no longer qualify for any small business CGT concessions, their effective tax rate could almost double to 47%. 

Nevertheless, our tax system penalises entrepreneurs for becoming too successful. That hardly seems like a sensible way to encourage innovation, entrepreneurship and economic growth. 

Does Australia’s poor productivity tell us something?  

In the year to June 2026, Australia’s economy grew by 2.1%, compared to 2.2% in the US. However, on a per-capita basis, Australia grew by just 0.7%, compared to 1.9% in the US. 

Much of this difference reflects population growth. Australia’s population grew by around 1.5% in 2025, largely due to migration, compared to just 0.3% in the US.  

A better measure is labour productivity, which measures economic output per hour worked. In the year to June 2026, Australia’s market-sector productivity fell by 0.1%, while US non-farm business productivity grew by 2.2%. The Productivity Commission also reports that Australia’s economy-wide productivity is barely 1% higher than its 2015–2019 average. 

While these productivity measures are not perfectly comparable, the difference is concerning. 

Of course, stronger economic growth does not necessarily translate into better share market returns. Many factors influence investment performance, although a strong and productive economy certainly helps. 

Nevertheless, these figures are consistent with my earlier concerns. Limited competition, insufficient reinvestment and a relatively small technology sector may all be contributing to Australia’s disappointing productivity growth, although they are certainly not the only factors. 

But there are some advantages of Australian shares 

To be clear, I’m not criticising Australia or suggesting it’s a poor place to live or do business. My concerns relate specifically to investing in the ASX. That said, there are some positives worth acknowledging. 

First, franking credits. For many Australian investors, these can add approximately 1% to after-tax returns, depending on their circumstances. This narrows the gap between Australian and international shares. It’s also worth remembering that some of the strong global returns have come from a weaker Australian dollar and rising share valuations, neither of which can be relied upon to continue. 

Second, our resources sector. Materials was the best-performing ASX 200 sector in FY26, gaining 48% in price terms. Australia’s miners are very good at what they do, and growing global demand for copper and critical minerals, particularly as economies electrify, could create further opportunities. 

Third, population growth. While migration can dilute economic growth on a per-person basis, it increases demand for housing, credit and consumer goods. With net overseas migration of around 301,000 in 2025, this provides a tailwind for many Australian businesses. After all, company profits depend on total sales, not sales per person. 

Finally, global share markets have concentration risks of their own. Technology accounts for around 32% of the global index, with a handful of large US technology companies accounting for a significant share of its value. 

However, I think there’s an important distinction. The 10 largest companies represent around 28% of the MSCI World ex Australia Index, compared to almost 50% of the ASX 200. Global companies also operate across more diverse industries, including semiconductors, software, retail, advertising and automotive manufacturing, with customers around the world. Australia’s concentration is largely in banking and mining, with significant exposure to domestic housing credit and Chinese commodity demand. 

Of course, global shares are not without risk. Many large US technology companies trade on expensive valuations, and a significant correction in these businesses would affect global share markets. 

My point is not that Australian shares are bad investments or that global shares are risk-free. It’s that investors should consider whether Australia’s share market offers the best future opportunities for long-term growth. 

Should you sell Australian shares?  

This is not an argument for selling Australian shares. If you already have Australian investments, I would likely retain them. Rather, it’s about where to invest new capital, and for that, we currently favour global shares over Australian shares. 

This reflects a broader shift in how we construct client portfolios. As Campbell discussed earlier this year, we’ve been progressively increasing our allocation to global shares and reducing our exposure to Australia. The concentration, valuation and structural concerns outlined above are some of the reasons behind that decision.