FY26 sucked. The ASX's long-term record tells a different story

The ASX 200 returned just 2.8% in FY26. On any read, Australian shares had a forgettable year.

My colleague Tom Stelzer's recent article laid that out in stark relief, stacking the ASX up against the rest of the world's major markets and finding it came in at number 16 of 20 major stock indices, and the last market on the list to still post a positive return before the remaining four turned negative.

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The ASX 200 finished 16th of 20 major stock indices in FY26 - here's where you should have invested instead

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Not only would investors have found more growth almost anywhere else, but there is also an anxiety beneath that number, pointing to a lack of investable growth here at home and an existential sense of falling behind.

The obvious question is why, and whether it's about to change. I put both to Sam Heithersay, co-portfolio manager of the Australian Equities Fund at Fidelity International, along with the implicit question beneath it: with the AI trade happening elsewhere, what's left to be excited about on the ASX?

A weak year, but a strong century

With the KOSPI coming in at 178% returns and the NASDAQ at 27%, Heithersay doesn’t refute the headline numbers for the ASX: “We certainly lagged this year."

His counterargument is about the timeframe. Before joining the Fidelity fund, Heithersay had done a body of work invetsigating the drivers of ASX outperformance, tracing Australian equity performance back to 1900. On that measure, the picture looks very different.

"From 1900 to 2025, we are still second in terms of real equity returns in US dollar terms," he says. "The S&P 500 is just narrowly pipped us as first, but only fairly recently."

His conclusion highlights what a structural feature of the market is - that Australia's returns have historically come from resources and financials offsetting each other, not from chasing whatever sector is running hot globally.

Missing the AI trade

Still, the data Heithersay leans on only runs to 2025. Have we reached a tipping point, or is this just noise in a much longer trend? 

The gap between our global peers and us comes down to where the money went.

"The first phase of AI disruption has disproportionately benefited a very narrow set of infrastructure enablers and frontier model pioneers," Heithersay says. "The majority of those are based offshore."

Australia's exposure sits further up the chain in critical resources like copper and local data centre construction, rather than the chips and models capturing the gains.

Heithersay's argument is that this cuts both ways. Less upside now, but also less concentration risk. 

"It's not just about concentration and who you're concentrated in. It's about whether that concentration is counterbalancing in a way that allows you to be more resilient as a market."

The AI trade in Australian companies is still theoretical

If you're hunting for the next stock that’s about to cut costs and re-rate on AI diffusion, it’s probably best to slow down. "It's still very early in my view," said Heithersay. "It's very hard to comprehend and understand how AI will impact the business models."

He points to a pattern he's seeing across corporate Australia - spend first, payoff later, if the payoff comes at all. 

"A lot of them were highlighting this J-curve effect where there was actually a lot of investment required in the AI tools, and often that meant hiring AI specialists, which naturally brought about inefficiencies before they recognised the productivity benefits at the other end of the trough."

The more interesting question, in his view, isn't who's cutting jobs fastest (read: “operational efficiency”). It's who can eventually use AI to add revenue rather than just to cut costs. 

The type of business Heithersay is interested in is perhaps the unglamorous ones that don't screen as an AI stock at all.

"Something as overlooked as a general insurer who can adopt AI to manage claims processing more efficiently, but also improve policy acquisition on the other side," he says.

Banks fall into the same bucket as heavy R&D spenders that fly under the radar because they don't look like tech companies.

HALO stocks 

There's a growing narrative that a safe way to get AI exposure without the volatility is in "HALO" stocks - heavy assets low obsolescence - which, if you think about it, Australia is naturally oriented towards. 

"Australia is naturally a more HALO market than offshore," Heithersay said. "We are naturally positioned upstream of an AI infrastructure capex build-out."

It’s worth noting again that this means less downside if the AI trade turns, but also less upside if it doesn't. He frames the shift as "initially more about algorithms and is increasingly more about atoms". That is, infrastructure and raw materials over software.

The obvious risk to that thesis is supply. He acknowledges a genuine scarcity problem in commodities like copper. 

"We are not finding copper in the grades that we were previously finding them, and it's becoming more challenging to find them in scale." 

Good for commodity producers already digging it up. Bad news if the scarcity slows the build-out Australia is depending on. 

In conclusion

I asked Heithersay whether the ASX benchmark is ever likely to look inspiring again, given everything he'd described. 

"[At Fidelity] We're much more about the bottom-up company-specific growth pathways than a broader macro top-down and who's going to benefit the most from these global structural themes," Heithersay said.

So at the index level, Australia isn't a market pitching itself as the next growth story. The case for Australian equities is a case for individual businesses, not for the benchmark - and investors should treat it accordingly.