The Australian share market is broken

The Australian share market is broken.

Maybe it is only general sentiment. Maybe what we are witnessing is a transformational phase.

Whatever the narrative, the causes or the eventual outcome, if there's one thing the recent August results season has shown it is that old rules and dynamics no longer apply.

Probably the most obvious expression of our changing market place is through share price action. Up until not that long ago, market analysis would detect a direct and enduring correlation between a great profit result and subsequent price action.

In various cases, and under the right circumstances, the halo received during results season would stick for up to three months. In August, many share price gains haven't even lasted for three consecutive days.

So is this the result of hedge funds arriving in full force in Australia, of AI agents increasingly being deployed, of the ETF industry crowding out active managers, of the uncertainty surrounding the proposed changes to capital gains tax, of ultra-low sentiment that also sees funds being redirected offshore, or maybe something else - how about all of those factors combined?

I honestly don't know. I am invested in the same share market as everybody who invests in Australia, and I am exposed to the same pullbacks and elevated volatility, within a context that generates more questions than answers.

Recent analysis by S&P Dow Jones Indices revealed the percentage of active funds managing to outperform their index in Australia has sunk to its second-lowest level since 2013.

For the Australian Equity General category the percentage of outperformers is only 11%. For the Global Equity General category that percentage is 4% (yes, four!).

Based on the recent August experiences and observations, I am not surprised.

One telling statistic is only 35% of the ASX200 has outperformed the local index over the first six months of 2026. While the corresponding percentage internationally is equally low, at 39% it is at least not that low.

There are clear, macro-economic forces that might help explain those shocking statistics. Inflation, rate hikes and higher bond yields go a long way, in particular in Australia, alongside war in the Middle East, a strengthening Aussie dollar, trouble in the property market, and general oversized angst towards the AI supertrend - unless it involves commodities.

Gold and copper exposures, and to a lesser extent energy, have kept the local index in positive territory over the year past, helped by CSL (ASX:CSL) and the healthcare sector in August, but a return of 5%, including 3.5% from dividends, instantly explains why the ASX is lagging internationally.

Total return from BHP Group (ASX:BHP) shares - circa 12% of the index - over the year past is circa 57%, which explains much of what has been going on beneath the surface.

At face value, corporate Australia is not doing too badly, with 12% EPS growth achieved in FY26 and most results meeting or beating expectations, but the FNArena Monitor (attached below) which applies a more comprehensive approach, also including sector-specific metrics and forward-guidance, classifies 37% of market updates as disappointing , versus positive 'beats' at less than 29%.

A 37% rate is a truly shocking outcome. The combination of such a high proportion of misses and a beat rate more than eight percentage points lower has been worse only once over the past thirteen years. The worst August results season occurred in 2024, with 37% misses versus 27% beats, but the ASX rallied by 3% the following month, led by miners and technology stocks.

The key difference between then and this time around is Australia remains burdened by the prospect of additional rate hikes.

Too Many Uncertainties

If we assume general sentiment will remain negative towards market segments affected by interest rates - think building, property and consumer spending, but also technology - then, indeed, the large chunk of ASX-listed companies had better prepare for low expectations for the time being.

One observation that supports this view is that companies which released better-than-forecast financial results, but happen to operate in the “wrong” sector, have seen their initial share price gains subsequently disappear.

One such example is Zip Co (ASX:ZIP), but we might as well throw in Stockland (ASX:SGP), Fisher & Paykel Healthcare (ASX:FPH), Ampol (ASX:ALD), Guzman y Gomez (ASX:GYG), HMC Capital (ASX:HMC) and News Corp (ASX:NWS) as well, among many others.

The eye-catching exceptions have been those companies whose share price had been priced for much worse scenarios. A not too bad result suggesting the downtrend need not continue has subsequently triggered a formidable rally, returning the valuation back to a more 'normal' level.

Those who were on board are today smiling nevertheless. Examples include CSL, but also Audinate Group (ASX:AD8), Australian Clinical Labs (ASX:ACL), Bapcor (ASX:BAP), Bravura Solutions (ASX:BVS), Domino's Pizza (ASX:DMP), and Ramsay Health Care (ASX:RHC).

As per always, there remains an equally familiar group of companies for which producing similar evidence of an operational turnaround remains too demanding a hurdle.

Think Endeavour Group (ASX:EDV), G8 Education (ASX:GEM), IDP Education (ASX:IEL), IPH Ltd (ASX:IPH), Iress (ASX:IRE), Lendlease (ASX:LLC), and Temple & Webster (ASX:TPW).

No doubt, CEOs at those companies would be willing to sacrifice their left arm if doing so allowed them to emulate the continued quality and strength shown through market updates from BHP Group (ASX:BHP), Codan (ASX:CDA), and Dicker Data (ASX:DDR).

I'd normally also include the likes of Goodman Group (ASX:GMG) and Charter Hall (ASX:CHC) but both stuck with conservative guidance for the year ahead, as they usually do, and this time around that was interpreted as a negative 'miss'.

Which brings me to probably the most obvious conclusion post August; the bias to weakening share prices must have opened up opportunities for investors that can look beyond the immediate market response.

Post-Season Opportunities

Within this context, names that are often mentioned by the analysts monitored by FNArena include:

• Breville Group (ASX:BRG)
• Eagers Automotive (ASX:APE)
• Orica (ASX:ORI)
• Pro Medicus (ASX:PME)
• Megaport (ASX:MP1)
• ResMed (ASX:RMD)
• Sigma Healthcare (ASX:SIG)
• Universal Store Holdings (ASX:UNI)

As well as some of the names already mentioned.

At the same time, while miners, in particular gold and copper exposures, have been the pillar of strength underneath the Australian market, their runaway performance should have further to run, including the contractors servicing their operations, as well as infrastructure, defence and the AI build-out.

Ironically, some of the strongest and high-quality results in August came from the technology sector and related AI-exposures, though that's not apparent from share price action since.

Surely, this too shall pass, eventually, as sure as night follows day and summer follows autumn, winter and spring.

The Numbers

Some of the statistics that have defined the August results season:

• Average share price since results release by last Friday: minus -0.5%
• Average share price retreat post initial share price response: -2% (for both winners and losers)

61% of share prices moved by at least 5% (either way) on results day

• Average share price response on the day for market-beating results: up 6.7%
• Average share price response on the day for in-line results: up 1.3%
• Average share price response on the day for disappointing results: minus -4.7%

FNArena Monitor (380 results) - attached below

• 141 'misses' (37.1%)
• 130 In-Line (34.2%)
• 109 'beats' (28.7%)

60% of companies mentioned AI in August, including mining companies such as Evolution Mining (ASX:EVN), Fortescue (ASX:FMG) and Whitehaven Coal (ASX:WHC).

After 12% EPS growth in FY26, consensus is now projecting 8% for FY27.

FNArena offers impartial, ahead-of-the-curve share market commentary and analysis on top of proprietary tools and data for self-researching and self-managing investors. Our service can be trialed at (VIEW LINK)