Australasian equities play an important role in diversified portfolios. Below, we explore how they behave, where they add value, and how they fit within a broader investment mix…
Australasian equities refer to shares in companies listed on the New Zealand and Australian stock exchanges. For New Zealand investors, deciding how much of a portfolio to allocate to these home markets versus international markets involves weighing up several advantages against some real limitations.
Advantages for New Zealand investors include favourable tax treatment and earning returns in their home currency, while disadvantages stem from the constrained size of our market, its concentration in mature sectors, and the under representation of higher growth industries.
Against this backdrop, one of the strongest reasons investors continue to hold local shares is their tax efficiency. New Zealand has no capital gains tax, meaning any growth in the value of your shares is typically tax-free when investing directly. This is a meaningful advantage that doesn’t exist in many other markets, and it can meaningfully enhance your after-tax returns over time.
Holding New Zealand shares means you’re investing in your home currency. This removes the complexity and risk of currency fluctuations that come with international investing, where a stronger New Zealand dollar can erode overseas returns even when the underlying investments are performing well.
However, despite these advantages, the structure of the New Zealand market introduces some important considerations. The New Zealand stock market is one of the smaller exchanges in the developed world. It is also heavily concentrated, with a handful of sectors, particularly utilities, property, and infrastructure, making up a large share of the market. This means that if one sector struggles, it can have an outsized impact on a New Zealand-focused portfolio.
The market’s limited scale also affects the range of opportunities available. Compared with global markets, investors have access to a narrower selection of companies and industries. Many of the world’s fastest-growing sectors, including technology, healthcare innovation, and advanced manufacturing, are under-represented locally.
Over the past five years, the New Zealand share market has lagged global markets in terms of overall returns. While past performance is never a guarantee of future results, this serves as a reminder that home bias, allocating too much of your portfolio to familiar local investments, can come at a cost.
For many New Zealand investors, Australia provides a natural extension of the local market and helps broaden the opportunity set beyond what is available domestically. The Australian share market is larger, more diversified, and includes meaningful exposure to sectors such as financials, resources, and healthcare. It also provides access to industries that are either small or absent in New Zealand, including large scale mining, major banks, biotechnology, and global consumer companies. This broader sector representation can help reduce some of the concentration risks inherent in the New Zealand market and create a more balanced Australasian equity allocation overall.
For most New Zealand investors, the answer isn’t choosing between local and global shares; it is finding the right mix of both. New Zealand equities can offer genuine tax advantages and reliable income, while international exposure provides diversification, access to a broader range of industries, and the potential for stronger long-term growth.
A well-constructed portfolio typically holds both, with the allocation tailored to an investor’s goals, investment timeframe and risk tolerance.
In summary, Australasian equities remain an important component of a diversified portfolio. Their tax advantages and income characteristics can be valuable, but their limitations highlight the importance of balancing local exposure with global opportunities to support long term portfolio resilience.
For more on how Australasian equities fit within a broader investment mix, refer to our Asset Allocation article and the other articles on asset classes in the Insights section of our website.
