Why the ASX 200 could outperform the US market for the next 10 years: expert

Resources might be more of a blessing than a curse for the ASX index…

Mitchell Lawler

Mitchell stumbled upon the concept of investing when in high school, devotedly urging his parents to put some money into a handful of technology companies with increasingly popular products among his demographic – many of which have gone on to great success. It wouldn’t be until 2017, some five years later, that Mitchell became an investor of his own money. Having studied and worked as a mechanical engineer in the building services industry, Mitchell takes a methodical and analytical approach to evaluating businesses. Rather than relying purely on numbers, Mitchell drills beyond a company’s metaphorical mantle to unearth obscure patterns or competitive advantages that would go otherwise unnoticed. His expertise resides within areas such as software, consumer goods, and building services equipment. However, his quest to find quality companies that set the industry standard and flex some degree of an impenetrable position has no limits – small cap to mega cap, cosmetics to healthcare – if it’s an exceptional business it’s on his radar.

Published March 9, 2022 11:15 am AEDT

A big part of investing is deciding where your capital is likely to make the greatest return over a given time period. In the past, the S&P/ASX 200 Index (ASX: XJO) has not been the best option for investors when compared to index options in the United States.

However, one fund manager is expecting that the Aussie share market will have its moment in the sun. This belief was shared by Regal Investment Management chief investment officer Phil King during the fund's webinar last Thursday.

So, let's take a look at the thinking behind King's bullish outlook for the Aussie index.

Women in an office with their fists up after winning. — Image source: Getty Images

How the ASX 200 might beat out the NASDAQ

For a long time, investors have been attracted to the outlandish growth displayed by US-based tech companies. The proliferation of the internet, app-driven economies, and efficiencies of scale propelled companies in the tech industry to unbelievable heights — making many wealthy shareholders in the process.

Meanwhile, mining companies experienced a less prosperous period. In fact, many ASX-listed resource giants traded below their 2008 highs until only recently.

For some context, here's a look at the share price performances of various tech and mining companies between 2008 and today.

Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) up 2,963%
Netflix Inc (NASDAQ: NFLX) up 9,609%
BHP Group Ltd (ASX: BHP) up 27%
Rio Tinto Limited (ASX: RIO) up 16%

Due to the ASX 200's heavy weighting towards resource companies, the local sharemarket underperformed the US during this time period, as shown in the chart below.

However, King points out that the weighting towards resources in the ASX 200 could be beneficial over the coming years.

King believes reserve depletion, lacking supply, decarbonisation, and high inflation will lead to a decade-long boom in the resource industry.

Less inflated tech in ASX 200

Furthermore, the fund manager suggests the tech-heavy NASDAQ could still be overvalued. King goes as far as to say that the current 'bubble' is more pronounced than the 2000 tech bubble.

The information technology is still one of the smallest sectors within the ASX 200. As such, the underweighting might also insulate the Australian market from further corrections in tech valuations.

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