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Super funds dumping the ASX and heading offshore

The Australian Stock Exchange risks becoming a backwater exchange, with many super funds switching money into international shares and other assets.

Dismal returns on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) so far this year have contributed to that, with the index down more than 7%, and likely headed for another large fall today.

Massive falls in commodities prices, including coal, iron ore and oil have seen large ASX-listed resource plays hammered. Iron ore is trading below US$40 a tonne, from above US$70 in November 2014. Brent crude oil has plummeted from trading consistently above US$100 a barrel over the past three years to also trade below US$40 a barrel. Thermal coal prices are down around 30% so far this year too.

That has contributed to BHP Billiton Limited (ASX: BHP) shares losing 41% of their value so far this year. Spin off, South32 Ltd (ASX: S32) has seen its share price halve, while our other big miner, Rio Tinto Limited (ASX: RIO) is down 26%.

Oil shares have been particularly hard hit, with Santos Ltd (ASX: STO) down 57%, Origin Energy Ltd (ASX: ORG) down 60%, Oil Search Limited (ASX: OSH) 21% and Woodside Petroleum Limited (ASX: WPL) 29%.

Australia’s big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) haven’t fared much better, with share prices down 18%, 8%, 15% and 5% respectively.

Two of Australia’s best performing super funds Qsuper and AustralianSuper have both redirected their investments away from the Australian market, with performance well ahead of the market. According to Fairfax Media, Qsuper has just 11.4% of its capital invested in domestic shares, compared to an industry wide average of around 30%, and its balanced fund is up 7.5% so far this year.

AustralianSuper is slightly ahead, with its balanced fund up 7.6%, and reportedly redirected $2.4 billion away from listed assets into direct property this year.

The ASX represents just 2% of the global market cap, and ranks fourteenth in the world according to Wikipedia, so it makes sense for large funds to invest overseas. Our ranking is falling as well. In early 2014, Bloomberg had the ASX ranked eleventh.

The other issue is that the ASX’s market cap is $1.5 trillion, and Australia’s superannuation system already has more than $2 trillion in assets. It’s already too large for the local market. With 50% of the Australian market tied up in a handful of companies, it also means there are limited opportunities to invest significant amounts in the local market.

Foolish takeaway

The listing of Australian tech company Atlassian in the US could also be a pointer of things to come. We could see more Australian companies choose to list offshore – leaving the ASX as the poor cousin to its global peers.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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