ASX shares are underperforming global markets. Here's why and what to do: expert
S&P/ASX 200 Index (ASX: XJO) shares have risen by less than 1% in 2026.
Meanwhile, the MSCI ACWI Price Index, which tracks developed and emerging markets, is up 13%.
Drilling down to specifics, the Japanese benchmark Nikkei 225 is up 21%.
The tech-heavy US Nasdaq Composite Index (NASDAQ: .IXIC) is up 15%.
Canada's benchmark, the S&P/TSX Composite, is up 14%.
The US benchmark, the S&P 500 Index (SP: .INX) has lifted 13%.
STOXX Europe 600, which tracks 600 companies across 17 European countries, is up 8%.
Why is the ASX 200 underperforming?
Private client advisor, Dianne Colledge from Morgans said weak consumer confidence has impacted ASX investor enthusiasm this year.
On SBS On the Money, Colledge said:
Consumer confidence has been the backdrop to investor confidence.
Sticky inflation is another reason why the ASX 200 has underperformed global markets in 2026, she said.
Not only is it contributing to downbeat sentiment, it's also forcing the Reserve Bank to raise interest rates.
After four rate hikes in 2026, Australia now has the highest cash rate of the 21 advanced economies.
This means ASX shares are competing with cash for investors' money.
Some basic bank accounts are paying as much as 5.5% these days.
So, ASX shares have to generate a higher total return, via growth and income, to attract investors' money.
In FY26, the ASX 200 delivered a total return of 7%, comprised of 2.77% growth and a 4.23% dividend yield.
Rising bond yields
On top of that, bond yields in Australia and the US have recently soared to multi-decade highs.
The US 10-year treasury note has a 5.09% yield, while the Aussie 10-year government bond is paying 5.25%.
Bonds are considered safer investments than ASX shares because they carry lower risk.
Colledge said: "Our market has been definitely impacted by the rise in government bond yields…".
Tax changes
Changes to capital gains tax (CGT), which will impact property and ASX shares, are also weighing on Australian investor sentiment.
From 1 July next year, the current 50% CGT discount for assets held longer than 12 months will be replaced by cost base indexation.
Existing ASX shares investments will be grandfathered, which means the 50% discount will still apply to gains made prior to 1 July.
After that, capital gains on existing and new ASX shares will be subject to cost base indexation plus a minimum 30% CGT rate.
What to do
Colledge said the Australian economy "is not giving us the growth that is required to generate really solid returns out of the ASX-listed companies".
As a result, Morgans is still investing in ASX shares but focusing on companies that earn money offshore in stronger economies.
We're focusing on companies that leverage off the US economy specifically, that is delivering a higher level of growth.
Her examples include ResMed CDI (ASX: RMD), QBE Insurance Group Ltd (ASX: QBE), Light & Wonder Inc CDI (ASX: LNW), BlueScope Steel Ltd (ASX: BSL), and James Hardie Industries plc (ASX: JHX) shares.
[They] all benefit from the growth that is delivered by offshore economies versus our economy right here.
Colledge also recommends that clients consider direct investments in overseas stocks or ASX ETFs that hold international shares.
Recent results speak for themselves.
The 6 top-performing ASX ETFs invested in international shares generated returns of 81% to 171% in FY26.
That compares to 20% to 51% returns from the 6 top-performing ASX ETFs holding Australian shares.
The No. 1 international performer was iShares MSCI South Korea AUD ETF (ASX: IKO), reflecting South Korea's stock market boom.
The No. 1 Aussie performer was SPDR S&P/ASX 200 Resources ETF (ASX: OZR), reflecting miners' dominance in FY26.
The post ASX shares are underperforming global markets. Here's why and what to do: expert appeared first on The Motley Fool Australia.
Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Light & Wonder Inc and ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool Australia has recommended Light & Wonder Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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