COVID-19 is still making it difficult, if not impossible, to physically travel to many parts of the world.
That’s not likely to change anytime soon. But, somewhat paradoxically, investors are travelling overseas like they’ve never done before.
The pandemic has been the key driver for the biggest surge in global investment flows ever seen as more and more investors tap into booming share markets.
Investor inflows into global equity funds in the first half of 2021 hit a record high of more than AUD 1.6 trillion (USD 1.1 trillion).
Those inflows have spurred many share markets around the world, including ours, to record highs.
The boom conditions reflect rising investor confidence as global economic and business conditions continue to improve, largely as a result of massive government stimulus programs, record low interest rates, and the rapid rollout of COVID vaccines.
Among those contributing to the record inflows are a growing number of Australian investors, including many first-time investors.
Following the money
While the lion’s share of global inflows (around AUD 1 trillion) have flowed into the US sharemarket so far in 2021, more than AUD 600 billion has flowed into other country markets and to broader regions such as Europe and Asia.
The rising tide of investor inflows has lifted most developed markets, but some more so than others.
Since the start of this year the Australian market, measured by the All Ordinaries Index, is up close to 11 per cent.
By comparison, the U.S. share market, measured by the S&P 500 Index, has gained more than 17 per cent so far this year, and the FTSE All World Index has gained just over 12 per cent.
The returns gap between the U.S. and other regions has been a trigger for some investors to seek out what they perceive to be undervalued markets.
There’s no single way of tracking how Australian investors are fitting into the wider global investment trend.
As well as being able to buy individual shares directly on offshore stock exchanges, many investors are using unlisted managed funds to capture exposures to global markets.
In Australia alone unlisted funds house tens of billions of dollars of investor assets.
ETFs capture global inflows
But one reliable indicator is the Australian Securities Exchange’s monthly data showing inflows into ASX-listed exchange traded funds (ETFs).
As well as investing in Australian shares, there are many ETFs listed here that invest across international shares in the U.S., Europe, Asia and emerging markets.
The latest ASX data shows that in June alone investors ploughed more than AUD 800 million into global (non-Australian) ETFS, while there was AUD 29 million in net outflows from Australian equity ETFs.
The global investment thrust has been an ongoing trend on the Australian share market for quite a while, and that’s evident from the ASX ETFs data totals.
Investors now have almost double the amount of funds invested in global equity ETFs on our market than they do in Australian equity ETFs.
At the end of June globally focused ASX-listed equity ETF products accounted for more than AUD 59 billion in funds under management versus around AUD 34 billion for Australian equity products.
The global equity total is more than double the AUD 27 billion in global equity funds under management at the end of June 2020.
The ASX splits global funds into the broad categories of Equity Global, Equity Asia, Equity Emerging Markets, Equity Global Sectors, and Equity Global Strategy.
Equity Global, which has AUD 23.5 billion in funds under management, accounted for AUD 335 million of the ASX inflows in June. These are broad products that invest across countries, continents and in several cases the entire world.
Equity Global Strategy1 was next largest with AUD 217 million of inflows, followed by Equity Global Sectors with about AUD 120 million.
Where and how Australian investors are investing globally is very diverse.
But the overall global investment trend, reflected by the record inflows across international markets this year, is a strong sign that more Australian investors (and international investors alike) are diversifying away from their home share market biases.
This Vanguard article was originally published here and was reproduced with permission.
