US shares experienced a decline over the past week, driven by persistent concerns regarding AI disruption, excessive capital expenditure related to technology, and valuations within the tech sector. The US share market fell 1.4% for the week. Conversely, European shares saw a more modest decrease of 0.3%, while Japanese shares surged by 5% following the LDP’s election victory, and Chinese shares rose by 0.4%. This comparatively stronger performance in non-US markets partly reflects an ongoing shift away from the AI and tech-heavy US share market.
Australian shares were buoyed by the return of profit growth, a welcome change after three years of declines. The local share market nearly surpassed last year’s high before relinquishing some gains on Friday, ultimately rising by 2.4% for the week. Leading the charge were utility, financial, material, and consumer staple shares. Bond yields generally decreased, led by the US, driven by safe-haven demand. This trend also extended to Australia, although Japanese bond yields remained stable.
Despite considerable volatility, the Australian share market has demonstrated a strong start to the year, gaining 2.3% and outperforming the US market, which is down by 0.1%. This growth has been fuelled by a resurgence in company earnings, particularly within the mining and banking sectors. Investors are also rotating away from the US tech market. While valuations appear rich, the potential for the Reserve Bank of Australia (RBA) to avoid further rate hikes could support continued positive gains this year.
The Australian dollar experienced an upswing, briefly exceeding US$0.71 for the first time since 2022, as the US dollar weakened. Factors driving this trend include a downtrend in the overvalued US dollar, strong commodity prices, and market expectations for a widening interest rate differential. Analysts suggest there is likely to be more upside for the $A, with a potential rise to around US$0.73.
