The ASX200 Hit a New All-Time High: Where to from here?

Of course, while things do look rosy for the bulls, if the index cannot hold the former highs some could see that as a signal that the buyer’s hand is weak, increasing the risk of profit-taking from an extended long position.

The rally from the April lows is a global phenomenon

The first observation is that while a 20% rally from the April lows is certainly impressive, it is not in isolation and we’ve seen equally, if not more pronounced gains in many of our other global equity indices.

Moves from the April lows:

ASX200 +20.7%

HK50 +27%

Taiwan index +29.2%

JPN225 +26.3%

Kospi +26.7%

GER40 +27%

FTSE100 +17.6%

NAS100 +34.4%

US2000 +27.2%

US500 +25.5%

Whilst coming off incredibly oversold conditions in early April, we can attribute the impressive snapback to a far more compelling macro environment, with the respective US tariff pauses in place. Adding to that, a resilient and even improving US and global economic data, US company earnings upgrades outpacing downgrades and a sharp reduction in cross-asset volatility resulting in investment managers injecting ever greater levels of capital into equities.

ASX200 specific dynamics

We continue to be reminded that the share market is not reflective of the economy. As we know, the Aussie economy is hardly blowing the lights out, and certainly not to the point that domestic cyclicals warrant EPS upgrades. In fact, the idea that growth remains sluggish reinforces the notion that the RBA will cut interest rates in the July RBA meeting, and possibly by a further 50bp by December.

With the RBA’s cash rate implied to fall to 3%, these expectations have seen house prices tick higher and Aussie 10-year govt bond yields falling to YTD range lows. This dynamic has offered tailwinds to domestic retailers, but also to REITs and financials – naturally, the commercial banks would need to offset lower loan rates with increased volume (to keep margins in check) - but with the market continuing to expect reasonable dividend growth in FY2026, the compelling high yields on offer in these investments reinforces the potential total returns on offer.

Assessing the quality of the rally

Since the April lows, ASX tech has led the way, outperforming the ASX200 by a massive 27 percentage points, and while tech holds a small contribution to the weighting of the index, the moves are more in fitting with the flows seen in the NAS100, and outperformance of US tech.

Energy, RIETS and financials have also outperformed, although it’s the big listed banks that have really added the index points.

ASX200 sector return since 7 April

Zip has been the share to own through that period, gaining 108%, with LIFE360 somewhat behind.

CBA driving the ASX200 higher

CBA has gained 18% from the April lows and is arguably the main talking point among equity players with the share pushing ever higher and trading at extreme valuations.

Essentially, the influence of passive flows and ETF rebalancing has made a mockery of traditional fundamentals and valuation considerations. It really is the flow show – where on one hand, Aussie pension funds have a scarcity of quality liquid assets to park the monthly inflows they receive from mandatory Super contributions and invariably this capital will work its way into the big banks on any weakness.

On the other, we see CBA accounting for 11.7% of the weightings in the main ASX200 ETF trackers (e.g. IOZ, A200) So, when the ASX200 rises, and the ASX200 tracking ETFs follow suit, the ‘Authorized Participants’ need to bring the Net Asset Value (NAV) in line with the ETF price – and that means buying a disproportionate amount of CBA share - these flows are not price sensitive.  

The distortions these flows are having on the ASX200 remains an active point of discussion – and is more pronounced in the local equity market because of its comparatively poor liquidity (vs US and EU equity bourses).

Interestingly despite the ASX200 at all-time highs, index breadth is not yet at extremes, with 71% of ASX200 listed companies above the 20-day moving average, 61% above the 200-day MA and 25% of companies at a 4-week high.

The bulls will state this the level of participation is a sign that we haven’t hit peak euphoria. The bears will counter by saying lacklustre breadth when the index hit an all-time high is a red flag.

Summary

We’ve come a long way since 7 April and there’s no doubt the potential reward in chasing the market at current levels is naturally less compelling than it was at say 8200 – however, while the ASX200 performance may differ from the NAS100, HK50 or EU indices, one needs to be open to the idea that if the S&P500 does push through its own highs then the ASX200 will get dragged higher in sympathy.

With passive flows still such a dominant force, unless the news flows radically shift and we see higher volatility across markets if the reason why equity reverses here is prominently down to market players taking profits, one suspects the pullbacks will be shallow and offering a new lease of life for dip buyers to support.