Recent data from global financial technology company IG indicates a strong bullish sentiment among Australian traders towards the S&P/ASX 200, with 65% predicting a rise in the next six months — the most optimistic outlook since January 2022. This sentiment marks a significant increase from the 44% confidence level recorded in June 2022, reaching 55% by December 2023.
However, Australian traders are also showing a broader interest in international markets, particularly in the United States.
The data reveals that nearly twice as many Australian clients believe the Nasdaq will outperform the ASX 200 in terms of growth over the next six months. This trend of favouring US stock markets, including the Nasdaq, S&P 500 and Dow Jones, is echoed by clients in the UK, Japan and Germany, possibly influenced by the US presidential election cycle, which historically impacts stock performance.
“Australian traders have shifted their trading strategies more to international markets – almost doubling their focus on the US in the last six months. In December 2023, 21% of IG clients said they had increased their focus on international markets, vs 13% in June 2023. This indicates traders are identifying greater opportunities outside of Australia where the market volatility and profit window might differ,” Head of Australia for IG Matthew Davidson said.
Why are Australians looking at international markets?
Davidson believes Australia’s traders are attracted to the diversity of overseas markets.
“Australians are looking at international markets to seek out the diversity we don’t have in our local market as Australia is very heavily weighted towards resource and financial stocks. By investing in an international market, Australians can access a much larger selection of industries and sectors most significantly getting exposure to Tech and Growth stocks.
"It also gives investors the opportunities to look at the biggest companies in the world and brands they are familiar with in our more globalised world such as Disney, Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA), Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT). This growing interest converges with the arrival of global technology platforms such as IG that have made access to these markets considerably easier and cheaper than ever before.
“International markets offer diversification, access to growth opportunities, exposure to unique assets, exposure to different market cycles, currency diversification, and an opportunity to hedge against local economic factors and geopolitical risks.
"This can allow investors to reduce their risk and smooth their returns through diversification of both sectors and geographies, but it can also allow client to potential increase their risk appetite to seek greater returns in higher growth markets mindful of the increased risk they are taking on.”
The report, titled 'A Trader’s Position' and informed by IG's biannual Client Sentiment Survey, highlights a significant interest among Australian traders in sectors such as energy and semiconductor equipment, despite ongoing geopolitical tensions between the US and China.
A shift in trading strategies
Davidson noted a shift in trading strategies, with Australian traders not only increasingly focusing on international markets, but also using advanced technologies such as artificial intelligence to assist with trading decisions. He also pointed out the rising use of digital educational tools, such as videos and podcasts, among Australian traders.
The research revealed an early stage turn by Australian traders looking to take advantage of the rise of AI, with 12% of Australian traders indicating they were using the technology to assist with trading and investment decisions, to analyse information and to define terminology. Despite the increasing interest, Australia is lagging behind on AI uptake amongst other global markets, with 16% of IG’s German clients indicating AI usage, followed by Japan (13%) and Singapore (13%).
Australians are out in front on the use of other digital tools, with close to a third having drawn on video content (35%) and podcasts (32%) as an educational source. The latter tallies with the findings of the 2023 Infinite Dial Australia report, which showed Australia is becoming a ubiquitous market for podcast listening.
Creating positive trends and opportunities
While diversity is an issue for local markets, Davidson said Australia could look to innovation to bring investors back.
“Australia currently lacks diverse investment opportunities and innovative industries. To reverse this trend, Australia needs to foster more innovation and support emerging industries and technologies. Government policies promoting research and development, entrepreneurship and infrastructure development can attract and retain investors. Economic changes and instability may also change or prompt reversals of this trend.
“Beyond what Australia can do to improve local interest and investment in local markets it is not an unhealthy trend to see Australian’s broaden their investment horizons and reverse the overly skewed home market bias that Australia currently over-indexes on. Diversifying their exposure to world markets should not be viewed as a bad thing but a positive trend towards more diversified portfolios opening up a broader range of investment opportunities.”