Australian vs. US tech stocks: how do they measure up?
Over the past six months, the majority of the workforce has worked from home with a significant number of JobKeeper payments, and according to a report from ASIC, this has resulted in a large influx of new investors and traders into the stock market.
When we look at what these new entrants have been buying, it has largely been technology stocks with a big uptake in US tech stocks.
But is this a wise choice or are many investors simply following the herd?
When talking about technology stocks, invariably most people think of Facebook, Apple, Amazon, Netflix and Google, which are known as FAANG stocks, with many investors holding one or more of these companies.
So how do Australian technology companies stack up in comparison to their US counterparts? In Australia, the technology stocks comprise WiseTech Global, Appen, Altium, Afterpay Touch and Xero, which are otherwise known as WAAAX stocks.
You may be surprised to learn that from January 1 to September 30, 2020, FAANG stocks have returned a gross capital gain of 220.21%, while the WAAAX stocks have achieved a return of 264.81% or around 20% better. While this is only a snapshot in time and is in no way conclusive evidence of one market performing better than the other, what it does highlight is the myth that investing in offshore markets can make you more money. Because those new to the market are led to believe that investing in US tech stocks is better than investing in Australian tech stocks. But unfortunately, none of this is true.
The ASX is well regulated and lists some of the world's best companies; so, while some world markets may outperform our market for short periods, over the long term it not only holds its weight but outperforms nearly all other world markets in terms of return. As the book, Triumph of the Optimists 101 Years of Global Investment Returns released by Princeton University Press nearly 20 years ago and updated in 2018 reveals, the Australian stock market is in the top three best performing markets in the world with the US market much further down the list.
Best and worst performing sectors this week
Information Technology was the best performer up more than 2% followed by Communication Services and Consumer Discretionary, which were both down 0.43% and 0.74% respectively. The worst performing sectors include Consumer Staples down nearly 5% followed by Utilities down more than 4% and Energy down more than 3%.
Looking at the ASX top 100 stocks, the best performers include Reliance Worldwide Corporation up more than 8% followed by Whitehaven Coal up just under 8% while Flight Centre and Boral were both up more than 7% so far this week. The worst performers include The a2 Milk Company, which is down more than 18% after analyst downgrades followed by Transurban and Bank Of Queensland, which are down more than 5% and 7% respectively.
What's next for the Australian share market
Earlier in the week, despite trading higher, the All Ordinaries Index looked weak, which was confirmed with the market falling more than 2% on Wednesday, effectively wiping out the gains of the prior four trading days.
Last week I mentioned that it is part of normal market fluctuations for price to move in the opposite direction for a period of time before continuing the longer-term move, which seems to be the case this week. Unless the market closes higher today, I see no reason to change my opinion from last week. Therefore, while we may see the market trade up for another week, it is more likely that the market will trade down next week into the low, which is expected to be below 5800 points and possibly as low 5400 points.
The good news is that I expect 2021 to be a much better year for the Australian market with many stocks setting themselves up to present some good buying opportunities.