How Do Australian and New Zealand Equities Fit Within a Global Equity Portfolio

For New Zealand investors, the question of how much to allocate to local and Australian shares versus the rest of the world is more than just a technical one - it’s about balancing familiarity, opportunity, and risk. While Australia and New Zealand are close neighbours, their stock markets are surprisingly different. And when you zoom out to the global stage, those differences become even more important.

This blog unpacks the unique roles that Australian and New Zealand (AUNZ) equities play in a global portfolio, especially for Kiwi investors. We’ll look at how these markets are structured, how they behave in different market cycles, and what that means for your investment strategy.

Let’s start with some context. The combined market value of all New Zealand shares is about USD 91 billion, spread across just over 100 companies. Australia is much bigger, with around USD 2 trillion in market cap and nearly 1,800 listed companies. But even together, AUNZ equities make up less than 3% of the world’s total share market. The US alone is nearly half of global equity value.

Why does this matter? Because it means that while AUNZ markets can offer diversification and local flavour, they’re small players in the global game. Overweighting them - something many KiwiSaver funds do, can tilt your portfolio away from the true global opportunity set.

New Zealand: The NZX is dominated by a handful of big, defensive companies—think healthcare, utilities, and infrastructure. These sectors are stable and pay reliable dividends, but they don’t offer much exposure to high-growth industries like tech.

Australia: The ASX is more cyclical, with heavyweights in banking, mining, and resources. Its fortunes are closely tied to global commodity demand and trade with Asia, especially China. When the world wants iron ore or coal, Australia benefits. When commodities slump, so does the ASX.

Global Markets: The world’s big indices, like the S&P World, are dominated by US tech, healthcare, and consumer companies. These sectors drive much of the world’s growth and innovation.

Liquidity matters, especially for big investors. The US and Australia offer deep, liquid markets where you can buy or sell large amounts without moving the price much. New Zealand, by contrast, is much thinner - most trading is concentrated in a few big names, and smaller stocks can be hard to buy or sell without paying a premium.

For most retail investors, this isn’t a daily concern. But for funds and institutions, it shapes which benchmarks they use and how they build portfolios.

Here’s where things get interesting. The NZX 50 is packed with healthcare, utilities, and industrials -sectors that do well in tough times but may lag in global booms. The ASX 200 is all about financials and materials (banks and miners). The S&P World is much more balanced, with big weights in tech, healthcare, and consumer sectors. We can see how these sector concentrations for each market differ in the graph below.

By adding some exposure to AUNZ equities the reliance on tech driven performance is immediately reduced, contributing to a more balanced and diversified risk profile. While at the same time the sector alignment with global benchmarks in other areas is largely maintained. Together these regional exposures can help stabilise returns across varying market condition.

A big reason many Kiwi investors love AUNZ shares is the income. Both NZ and Australian shares offer higher dividend yields (around 3–3.5%) than global shares (1.5–2%). For NZ investors, local shares are especially tax-efficient thanks to imputation credits and PIE structures. Australian shares are a bit less tax-friendly, as NZ investors can’t use Aussie franking credits, but they’re still better than most global shares, which are subject to the complex FIF regime.

Bottom line: If you want income, AUNZ shares deliver. But don’t let yield blind you to the bigger picture - growth and diversification matter too.

New Zealand: Tends to outperform during global downturns, risk-off periods, and when interest rates are low. Its defensive, high-dividend sectors attract investors looking for safety and yield.

Australia: Shines during global booms, commodity rallies, and periods of strong risk appetite. When the world is hungry for resources, the ASX 200 does well. But it can lag when tech leads or when commodities slump.

Global: Outperforms during tech-led rallies and synchronized global growth. The S&P World’s heavy tech and healthcare exposure has driven strong returns in recent years, especially during the AI and digital innovation boom.

Key insight: The rotation between AUNZ and global outperformance is driven more by global cycles than local news. Australia is a “risk-on” play; New Zealand is a “defensive anchor.”

Despite their proximity, NZ and Australian shares only have a moderate correlation (about 40% on average). This means they can offer real diversification benefits, especially when global events hit sectors differently.

But beware: both markets are underweight tech and overweight defensive/resource sectors. If you overweight both, you may be doubling up on certain risks and missing out on global growth drivers.

For NZ investors, currency can have a big impact on returns. Historically, the returns of Australian shares in NZD and AUD are highly correlated (over 90%), so there’s little benefit to hedging. For global shares, the correlation is much lower and more variable, so many funds hedge at least part of their global exposure to reduce volatility.

Looking forward, two big forces are shaping markets:

1. The AI and Tech Boom: Global innovation, especially in AI and digital transformation, is driving long-term growth. US and global shares with big tech exposure are likely to benefit most.

2. Geopolitical and Trade Risks: Rising protectionism and trade tensions (think US-China) create uncertainty, especially for export-driven economies like Australia and New Zealand. While both countries are seen as stable, their reliance on global trade can be a vulnerability.

What does this mean for portfolios? If you want to increase your Australian exposure, it may make more sense to reduce your NZ allocation rather than your global holdings. Both AUNZ markets share similar sector biases and limitations. Global shares offer broader sector exposure and access to the innovation driving future growth.

In a world where innovation and uncertainty go hand in hand, the best approach is to stay globally diversified while making smart, selective adjustments to your regional weights. AUNZ equities have a role to play -offering income, stability, and some diversification, but they shouldn’t crowd out the global opportunities that drive long-term wealth.

By understanding the unique strengths and limitations of each market, Kiwi investors can build portfolios that are resilient, balanced, and positioned to capture the best of both local and global worlds