Why international investors are flocking to ASX shares right now

Let's take a look and see why.

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Key points

  • The Russian-Ukraine war is driving international investors to buy ASX shares, said Macquarie 
  • Offshore investors are finding value here due to strong commodity prices and rising geopolitical risks 
  • Macquarie believes the Aussie could hit US96 cents and that will give offshore investors another reason to buy ASX shares now 

Strong interest from offshore investors may have contributed to S&P/ASX 200 Index (ASX: XJO) shares outperforming the S&P 500 (INDEXSP: .INX) recently.

Macquarie noted that demand for ASX shares from overseas investors has significantly increased since Russia's invasion of Ukraine, reported The Australian.

While the war has delivered a blow to investor sentiment, the impact wasn't as badly felt here. The ASX 200 Index is more than 200 basis points ahead of the S&P 500 since the start of the year.

Why ASX shares are beating the US

It's rare for ASX's benchmark index to beat its US counterparts. This time, it coincides with increased buying from international investors.

"Our Australian equities team has seen this interest first hand," Macquarie's Australian equity strategist, Matthew Brooks was quoted as saying by The Australian.

"For the first time in several years there is strong interest in Australian equities, mostly resources but also banks and real estate.

"Australia is a long way from the Russia-Ukraine war, but the event is having a bigger than expected impact on the share market."

Exchange rate outlook favours ASX shares

The broker also increased its exposure to ASX shares, including resources, in its model portfolio recently. One reason is that Macquarie believes the Australian dollar could jump as high as US96 cents.

This prediction isn't farfetched if commodity prices remain high while the US economy slows due to inflation.

The jump in the Aussie will give unhedged offshore investors a further gain from the exchange rate.

Commodity price upgrade provides second tailwind

Meanwhile, analysts have been upgrading their price forecasts for a wide range of commodities, from metals to energy.

This probably helped the BHP Group Ltd (ASX: BHP) share price rally to a seven-month high yesterday. Its peers like the Rio Tinto Limited (ASX: RIO) share price and the South32 Ltd (ASX: S32) share price have also performed strongly in the last several weeks.

"An important implication of the commodity tailwind for Australian growth is that our domestic cycle has suddenly improved relative to the US," added Brooks.

Rising tensions put Australia in a good spot

But commodity prices and the currency aren't the only tailwinds for ASX shares. Brooks believes Europe's largest conflict since the Second World War has forced global investors to think about geopolitical risks.

"These risks are likely greater in authoritarian regimes, and the other large authoritarian country is China," he said.

"For investors concerned about investing in China, Australia is an alternative for Asia exposure, as it offers resources exposure within the backdrop of Australia's strong and stable democratic institutions and governance."

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Motley Fool contributor Brendon Lau owns BHP Billiton Limited, Macquarie Group Limited, Rio Tinto Ltd., and South32 Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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