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 resident investors with NZD as their base currency. 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 2% of the world’s total share market. The U.S. 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.

The shape of each market matters too.

Global Markets: The world’s big indices, like the S&P World, are dominated by mega-caps (>$200B) making up 46% of its market and largely concentrated in US tech, healthcare, and consumer companies. These sectors drive much of the world’s growth and innovation. 

Australia: The ASX has no mega-caps. It’s centre of gravity is large cap companies (USD $10-200B) bracket that account for about 68% of the ASX by value. It’s also more cyclical by nature, with heavyweights in banking, mining, and resources and is 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.

New Zealand: The NZX ‘core’ sits in mid-caps (USD $2 – 10B) which make up 56% of market value, with a single large-cap (Fisher & Paykel) lifting the concentration risk at the top. The market 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.

Below that, all three markets have long tails of small and microcaps—numerous and sometimes punchy, but a modest share of total market cap (NZ: 24% small, 7% micro; AU: 9% small, 3% micro; US: 0.8% small, 0.2% micro).

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.

Benchmarks need to do two jobs at once: striking a balance between broad market representation and a practical ability to invest. That balance is tighter in smaller, thinner markets like New Zealand. The S&P/NZX 50 covers about 90% of the NZX’s free-float market cap, but it’s top heavy. Names like Fisher & Paykel Healthcare, Auckland Airport, and Infratil can add up to 30%+ of the index. Many smaller names are excluded not by accident but by design; if the bottom end of the market barely trades, putting those stocks in a benchmark makes it harder (and costlier) to track in the real world.

Australia has more room to move. With a deeper list of investable companies, you get scalable options like the S&P/ASX 100, 200, 300, and All Ordinaries, all still straightforward to implement.

In larger developed markets, breadth and liquidity line up even more neatly, which is why global indices like S&P World or FTSE Developed can cover thousands of stocks and still be easy to track using sampling.

The takeaway: in deep markets, representativeness and investability tend to align; in smaller markets, you accept trade-offs. For our analysis, we use S&P/NZX 50 for New Zealand, S&P/ASX 200 for Australia, and S&P World for global developed equities to keep things comparable and investable.

The graph below illustrates the comparative levels of concentration risk across all three indices.

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). In contrast the S&P World is much more balanced, with big weights in tech, healthcare, and consumer sectors.

We can see how the sector concentrations differ for each market, 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 conditions.

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%) to 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.

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.

When you compare AUNZ to global equities, timing matters. Because NZ and Australia close well before the US, daily moves in global markets often show up in AUNZ the next day. If you don’t adjust for this, correlations can look off.

Once you account for time zones, the longer run pattern is steady: the ASX 200 and NZX 50 typically show 12 month rolling correlations of roughly 40–65% with global equities. That moves higher or lower through cycles depending on what’s driving markets. Sector mix is the big swing factor. When global tech and healthcare lead, markets heavy in those sectors (like the S&P World) behave differently to Australia’s financials and resources tilt. NZ’s more defensive lean can sometimes track global leadership better than Australia, especially when cyclicals lag.

You can see this in the extremes. During COVID, the ASX 200’s correlation to S&P World fell sharply once timing was aligned, while the NZX 50 held nearer 40% as defensives did more of the heavy lifting. Go back to the early 2000s tech bust and the contrast is even starker: with little tech exposure, NZ delivered a positive 12 month rolling return (~3.6%) versus a deep global drawdown (–15.5%), while Australia lagged (–7.9%). Same region, different sector engines, very different outcomes.

The performance table sums it up across the different regimes from 2001–2025. Global sets the pace, but AUNZ doesn’t always follow in lockstep. Australia can lead when cyclicals and reopening dynamics help, and lag when tech is in charge. New Zealand can cushion global drawdowns thanks to its defensive tilt but carries concentration risk.

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 appears to be driven more by global cycles than local news. Australia is a “risk-on” play; New Zealand is a “defensive anchor.”

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.

Investors need to consider how to balance regional and sector exposures. 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.

For financial advisers, the central message is clear: Australian and New Zealand equities deserve a place in Kiwi portfolios—but the role they play should be deliberate, not incidental. Together, AUNZ markets provide income, diversification, and familiarity, yet they are small and structurally concentrated compared to the global opportunity set. Their strengths—as a defensive anchor in New Zealand and a cyclical growth lever in Australia—can complement, but not substitute, global exposure. In practice, that means guiding clients to position AUNZ equities as regional satellites around a truly global core. This balanced approach not only captures the benefits of home-market investing but also ensures clients remain aligned with the sectors and innovations shaping long-term wealth creation worldwide.

Markets will continue to evolve, and leadership can shift over time. But by combining insights from past performance with an understanding of structural global trends, Kiwi investors can build more resilient, forward-looking portfolios.

In today’s world where innovation and uncertainty coexist, - staying globally diversified while selectively adjusting regional weights is key to capturing long-term opportunities without compromising balance.

Note: This content is sourced from a Kernel research whitepaper. Please email us at advisers@kernelwealth.co.nz if you would like a copy of this research.