Australian share investments have had a good run lately with the market at record levels. For the twelve months to the end of October the All Ordinaries Total Return Index (includes dividends) earned 25.4 per cent according to Lonsec Research.

This abnormally high return was helped by starting from a low point. Around October last year the market was in a downturn. The result will always look good when measured from a below-trend point. The ten-year return was 8.6 per cent per annum.

Australian shares have done well over the last year, but overseas shares have done better. The MSCI World ex-Australia Index earned 29.3 per cent for the year to October. More significantly, international shares returned 13.2 per cent per annum for the last ten years.

That long term return is 4.6 per cent better than local shares long term. That’s more than half as good again.

Australians have increased their overseas share investments greatly in recent years. The Australia Stock Exchange says in the first nine months of this year 56 per cent of inflows to ETF’s went to international funds with only 22 per cent going to local funds.

Fund manager Vanguard says Australians are now investing a much greater proportion of their money in overseas shares than even five years ago and the loyalty bias to local companies is fading fast.

US shares led gains among developed countries, with stock markets in Britain and some European countries doing quite modestly with low to mid single digit returns. The differences raise questions why some countries have done better than others.

One theory is that Britain and Europe are overregulated and that eats into productivity and profits. Anyone who watched the television series Clarkson’s Farm saw that very well demonstrated in Britain.

The very strong gains from US shares over recent years have been led by the big technology stocks. Microsoft, Apple, Alphabet, Amazon, Meta Platforms, Nvidia and a few others have created huge value for users and investors. As artificial intelligence develops it seems likely that will continue.

What are the prospects for Australia? Perpetual Funds Management’s Head of Australian Equities Vince Pezzullo says the two big handicaps we face are a fragile energy supply system with high costs, and an inflexible labour market.  

There has been a strong surge in share prices in the US and some other countries since Donald Trump’s election victory. He won office promising deregulation and corporate and personal tax cuts, good for business. If he can deliver US companies and share markets should continue to outperform.