Billy Leung
For much of the past decade, Australian investors have watched the American S&P 500 surge ahead while our ASX 200 has lagged, weighed down by its heavy tilt toward banks and resources and its relative lack of exposure to the global technology cycle.
The obvious question is whether that gap will widen yet again, or whether conditions are finally aligning for the local market to put up a stronger fight.
On the surface, the US still holds the earnings advantage. Consensus points to around 13 per cent year-on-year earnings growth for the S&P 500 this year and closer to 15 per cent in 2027.
The ASX 200, by contrast, is expected to grow about 14 per cent year on year in 2026 but only about 8 per cent the following year. That leaves Wall Street with a growth premium – but a narrowing one.
And this narrowing matters. When the earnings gap compresses, the probability of Australian outperformance rises, particularly in areas where our market is structurally overweight. Currently, those areas are benefiting from several supportive trends.
Strength in gold, copper, lithium and uranium is giving Australian miners a tailwind that is both cyclical and structural. Years of underinvestment combined with rising global demand have tightened supply. Electrification, grid expansion, energy security initiatives and the enormous build‑out of AI and data‑centre infrastructure are all driving sustained appetite for critical minerals.
Wall Street provides durability, but the ASX offers cyclical torque. This year, investors may find they can have both.
When commodity prices firm against that backdrop, the impact runs deeper than simply boosting margins; materials become one of the few sectors globally with genuine forward earnings momentum. Given the ASX’s heavy resource weighting, a sustained upswing in commodities can carry the index.
Recent earnings from BHP have crystallised this trend. For the first time, copper contributed the largest share of the company’s earnings, eclipsing iron ore. This marks a meaningful shift in Australia’s resource narrative: iron ore still matters, underpinned primarily by China’s steel demand, but its dominance is gradually eroding as global investment rotates towards energy‑transition metals.
Copper’s rise reflects the structural pull of electrification, AI data‑centre expansion and renewable infrastructure – while the growing strategic footprint of nuclear inputs such as uranium adds further depth. Iron ore remains the foundation, just no longer the whole house.
Meanwhile, the US is entering a different phase of its own cycle. The first wave of the AI boom was dominated by a small core of hyperscalers and semiconductor giants. These companies remain extraordinarily profitable and continue to generate the free cash flow needed to fund immense capital expenditure on data centres, chips, power and networks.
Increasingly, they resemble digital utilities – providers of essential infrastructure for the modern economy. But the market is beginning to broaden as earnings growth spreads into industrials, energy, software and the companies building the physical foundations of AI.
That broadening is healthy for the longevity of the US rally, but it also means returns may become less concentrated in the giants like Nvidia that previously set the pace. As participation widens, the competitive gap between the US and other markets, including Australia, can narrow.
Interest rates will shape the backdrop but are unlikely to be the defining narrative. If the Federal Reserve cuts rates this year, that will generally support equity valuations, though the more durable driver will be how earnings evolve across sectors.
In Australia, banks have already enjoyed the bulk of their benefit from higher rates through stronger net interest margins, and much of that now appears reflected in share prices.
The latest earnings season confirmed this: across the four major banks, results were broadly strong and ahead of elevated expectations, with margins stabilising at higher levels, asset quality proving resilient, and capital positions supporting dividends and buybacks.
The market response, however, indicated that much of this strength was anticipated, limiting further upside unless credit growth meaningfully accelerates. That again shifts attention towards areas with clearer leverage to global investment trends – namely, the miners.
The United States still enjoys stronger aggregate earnings growth, but Australia’s resource exposure places it on the right side of some of the most important global investment themes of the decade.
And with BHP’s copper‑led result signalling that energy-transition metals are no longer a future story but a present-day earnings driver, that positioning is already being reflected in company performance.
If the commodity backdrop remains firm and the US rally continues to broaden rather than concentrate, 2026 may offer the best conditions in years for selective Australian outperformance.
Wall Street provides durability, but the ASX offers cyclical torque. This year, investors may find they can have both.
Billy Leung is a senior investment strategist at Global X ETFs.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.
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