SYDNEY: Australia’s stock market has emerged as an unlikely haven from the artificial intelligence (AI)-driven volatility that has roiled Asian equities in recent months.
The S&P/ASX 200 Index is on track to outperform the MSCI Asia-Pacific Index for a second straight month, the longest such streak since November 2024.
The regional benchmark has extended its decline from June as semiconductor shares surrendered gains that fuelled much of Asia’s rally this year, a trend that may continue to favour Australia’s more defensive equity market.
The nation’s limited exposure to chipmakers, once viewed as a drawback during the AI-fuelled rally, has become a source of resilience as semiconductor shares slumped in South Korea, Japan and Taiwan.
The shift highlights growing investor caution towards the crowded AI trade and a rotation into other markets as volatility intensifies. Australia’s equity index has “been a bit of a pillar, given the pullbacks we’ve seen in some of the semiconductor stocks”, said Tony Sycamore, a market analyst at IG Australia.
“I think what you’re seeing there is a bit of a stable market”, including inflows into Australia’s banking sector because of “the safe-haven nature that they offer”.
Still, some of those flows may be “overdone” given Australia’s weakening domestic backdrop, Sycamore added.
This month’s more-than-20% surge in oil prices has revived inflation concerns, clouding the outlook for Australia’s largest consumer-facing companies.
Swaps traders see an almost 85% chance the Reserve Bank of Australia (RBA) delivers another quarter-point rate hike by the end of the year, while benchmark 10-year bond yields have climbed to a two-month high, lifting borrowing and refinancing costs.
“The combination of lower growth and likely more RBA rate hikes may act as a constraint on the Australian share market over the next six months,” said Shane Oliver, chief economist and head of investment strategy and economics at AMP Ltd.
Even so, the recent turmoil in Asia’s AI trade is prompting investors to look for ways to maintain exposure to the theme without taking on the volatility associated with semiconductor stocks.
Technology shares have come under mounting pressure as investors question whether this year’s AI-fuelled rally has run too far, too fast, and when the industry’s trillions of dollars in investment will begin generating meaningful returns.
South Korea’s Kospi Index, a bellwether for the region’s AI investments, has fallen almost 30% since reaching a record high in June, underscoring the risks of markets heavily concentrated in chipmakers.
That is creating an opening for Australian stocks. Rather than offering direct exposure to semiconductor manufacturers, the market is providing investors with indirect beneficiaries of the AI boom.
Data centre operators have emerged as one of the market’s strongest performers, while miners are expected to benefit from rising demand for copper, aluminum and other commodities needed in the AI buildout.
“Australia’s story recently has been about resilience,” said Hugh Lam, investment strategist at Betashares in Sydney. “The index’s income-oriented nature is a natural anchor when risk appetite sours and the AI trade turns volatile.” — Bloomberg
