Investing in Australia: commodities, growth and a gateway to Asia

European investors tend to forget about Australia. Nevertheless, the country has plenty to offer: commodities for the energy transition, stable economic growth and access to the Asian economy.

One of the main reasons to take a good look at Australia is diversification. Australia’s economy has its own economic cycle, driven by commodities, Asian trade and its own monetary policy.

The Australian economy saw continuous growth between 1991 and 2020, a record among industrialised countries (source). Although the pandemic broke that run, recovery was quick. The economy grew by 1.9% last year, and this is expected to accelerate to 2.1% in 2026 (source), more than in the eurozone. The country has a solid banking system, low public debt compared to other rich countries, a strong labour market and considerable immigration that continues to support consumption (source).

There’s also another side to that resilience. While the Reserve Bank of Australia (RBA) dropped its key interest rate three times in 2025, growth was so strong that inflation re-emerged despite this. The RBA therefore raised the key rate again in February 2026 (source). This is both good and bad for investors. It confirms Australia’s economic resilience, but also creates uncertainty about the progress of interest rates and inflation, especially now that oil prices have been rising sharply.

The Australian stock market: commodities, banks and a fast-growing tech sector

The S&P/ASX 200 is Australia’s leading stock market index. It features the country’s 200 largest listed companies and represents approximately 77% of the Australian equity market by market capitalisation (source). Since its creation in April 2000, this index has boasted an average annual return of 8.34%, including dividends (source).

If you compare the ASX to Wall Street or European stock markets, it’s soon clear that this is a fundamentally different market. The index is dominated by three big blocks: the financial sector (Australis’s four major banks together account for almost a quarter of the index), the commodities and energy sectors, and a fast-growing tech segment that gained an impressive 48% in 2024, beating the NASDAQ 100 (source).

Investing in the ASX automatically produces a portfolio that is strongly affected by commodity prices, the financial sector and Asian trade. After all, Australia is also a gateway to this region. As trading partner to China, Japan, South Korea and the ASEAN countries, it indirectly absorbs some of Asia’s growth. China is actually the country’s largest export destination, accounting for 29% of Australian exports (source).

Another distinguishing feature of the ASX compared to European and US stock markets is its strong dividend culture. Australian companies tend to distribute a large portion of their profits as dividends, thanks to a tax mechanism that encourages paying out high dividends. This system has no direct tax advantage for Belgian investors, but it does explain why Australian equities systematically offer higher dividend yields compared to European or US counterparts.

Access to tomorrow’s commodities

This may be the most underestimated asset for European investors. Australia is the world’s largest producer of lithium (39.8% of global output) and iron ore (36.8%), as well as being home to the largest reserves of gold, lead, uranium and zinc worldwide (source). Mining accounts for more than 12% of its GDP and represents around 70% of export revenues (source).

And that goes further than the classic commodities. Australia is also rich in commodities with important roles to play in the energy transition. Examples include cobalt, graphite, manganese, copper and silver. These are essential raw materials for electric vehicles, batteries, solar panels, wind turbines and military defence.

In 2025, China imposed export controls on rare earth metals. With relatively large reserves of rare earth metals, a Western legal system and reliable track record, Australia makes good sense as an alternative.

Australia must manoeuvre its way through a complex geopolitical puzzle. The country is a member of AUKUS (with the US and the UK), the Quad (with the US, Japan and India) and the Five Eyes Intelligence Alliance, placing it firmly on the western side of the geopolitical dividing line - at the same time as China remains its largest trade partner (source). This position makes Australia both vulnerable and strategically valuable. The country has become an indispensable element of the West’s strategy to be less dependent on China, but also relies on China as an export market.

Investing in Australia: points to consider

In addition to the usual market risks, there are various risks specific to investments in Australian equities:

1. Dependence on China. China is the destination for almost a third of all Australian exports. If the Chinese economy slows down further or new political tensions arise, this could significantly reduce demand for iron ore and coal. China has already imposed restrictions specifically targeting Australian wine, agricultural products and coal (source).

2. Foreign exchange risk. The Australian dollar (AUD) is a typical commodity currency; rising and falling in response to commodity prices and global risk sentiment. In times of stock market stress the AUD often drops sharply, further worsening the returns for Belgian investors (in euros). An unhedged position entails a currency risk.

3. Climate risk and transition away from coal. Australia remains one of the world’s largest exporters of coal. As the global energy transition accelerates, general demand for this product will fall. Mining companies with high exposure to coal are facing long-term challenges.

4. Concentration risk. The ASX 200 is heavily focused on financial institutions and commodity companies. Investors in this index automatically gain more weighting in these two sectors, limiting their exposure to other growth sectors. The banking sector, which accounts for a quarter of the index, has been trading at historically high valuations with limited earnings growth prospects (source - situation as at 9 March 2026). The broader market is currently trading at around 37% above the 10-year average valuation level, which doesn’t leave much of a margin for setbacks (source - situation as at 9 March 2026).

How to invest in the Australian stock market

For investors wanting to diversify, there are two easy options:

1. Trackers (ETFs)

If you want to invest broadly, you can opt for ASX 200 index trackers. If you go for this option, be sure to check whether the tracker is listed in EUR or AUD. Is it EUR-hedged? What is the annual expense ratio? The list goes on.

If you’d like to invest more specifically in commodities or rare earth metals, there are also thematic ETFs.

2. Active fund management

Investors who prefer to have a team of professionals handle things can opt for funds with a focus on Asia Pacific markets or commodities. The advantage is that a manager can actively intervene in your portfolio; the disadvantage is that management fees are higher than for trackers.

Before investing, be sure to read up on the key features and risks of financial instruments.

Looking for trackers or funds relating to this topic?

Log in to Keytradebank.be or open the app and search for the name of the tracker or fund in which you want to invest. Useful search terms for funds and trackers include ASX, commodities and Asia Pacific.