Australian shares have listlessly traded sideways for the past four months, as investors fail to find anything that will move the market decidedly in either direction.

But some argue a possible slowdown in China, an easing of commodity prices and the reluctance of households to leverage further will ultimately cripple the earnings growth potential of the big four banks and the resource giants.

Generally the largest attraction for global investors, Australia's largest corporate banks are suffering as these global money managers turn their attention elsewhere; namely the United States, Japan and Europe.

An analysis of 586 large long-only funds managing $1.4 trillion shows money managers are decidedly underweight Australian shares, making the ASX the most underweighted index in the region for the third month in a row, according to Bank of America Merrill Lynch.

Earnings stifled

The disproportionate composition of the ASX200 - comprising largely banks and resources companies - has investors facing a period of stifled earnings growth.

"Two-thirds of the Australian market is now suffering from structural impediments," Matthew Sherwood, head of investment strategy at Perpetual, said.

"While the next way for interest rates to go is up, it's the single-digit earnings growth plaguing the miners and the banks that will keep the ASX range bound in the near future."

While higher interest rates generally are a positive for financials, increased government and regulatory scrutiny and pressure on bank profit margins will likely deter foreign investors.

"There might be an initial relief rally for Australian banks on the news of higher rates, but the real question is, will Australian banks be able to get stronger over time?" Jacob Mitchell, chief investment officer at Antipodes Partners, an internationally focused investor, said.

"There's a definite pressure on bank profits locally."

Profit driver

Mortgages account for roughly 60 per cent of major bank loans and have driven record profits for Australia's largest banks.

But borrowers have recently begun moving away from high-cost interest-only loans, which have largely supported bank profitability.

PwC recently pointed out that new loans will be made on a principal-and-interest basis and to owner-occupiers. This would put a further squeeze on bank margins, given their lower interest rates.

Further to this, following the banks' decision to raise rates on interest-only loans - by about 0.5 percentage points - clients are now paying down their debt faster than ever.

"This doesn't bode well for Australian banks who are already fairly stretched," Mr Mitchell said.

Loan transition

"This transition off interest-only loans for borrowers and the fact they're already relatively expensive versus global peers explains why global investors are likely to look elsewhere."

Australia's largest mining corporates have enjoyed investor support as iron ore - Australia's largest export - hovered at surprisingly high levels, but in recent weeks the sheer amount of global supply and concerns over Chinese demand have seen high-grade ore slide back in price.

Global investors are wary of buying up ASX-listed stocks with greater exposure to a slumping iron ore price.