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  • Writer's pictureRobert Baharian

My Thoughts on The Australian Stockmarket

I remember bringing in my parents' mail, opening the holding statements. My parents bought into the Telstra float. I have absolutely no idea how my parents ended up with these. They have been an absolute basket case IMHO. "They pay a good dividend" - at what cost? My capital, no thanks.

People buy into what they know. What makes them comfortable. Sometimes however, it's not logical. Since Telstra floated in 1997, the world of investing has changed significantly. Yet I suspect many Australian investor portfolios would still look like my parents' portfolio back all those years ago.

Australian shares have performed quite well since the Telstra float of 1997. In fact, like most stock markets around the world, the Australian stock market has hit an All Time High (ATH) recently.

I've selected a few country indexes from around the world, and you can see the ASX in the red dotted line. During the peak of the GFC, the Australian stock market was performing as well as the US stock market.

When you take dividends into account, the Australian stock market has been on fire.

What most people probably don't realise though, is the concentration of the Australian stock market. In other words, the risk.

Here are the top 5 sectors of the ASX:

Materials: 31.5%

Financials: 24.09%

Healthcare: 10.50%

Consumer Cyclicals: 8.72%

Technology: 5.93%

Here are the top 5 stocks in the ASX (in order of weight):

BHP: 8.60%

CBA: 7.41%

Rio Tinto: 6.89%

CSL: 5.71%

Westpac: 3.94%

What worked in the late 90's and early 2000's certainly hasn't worked of late. Here is the total return of the same group of stock markets for the last 10 years. As you can see, the stellar performance of the Australian stock market from the late 90's is nowhere to be seen.

The top 5 companies in Australia represent almost one third of the entire market. Just think about that for one second. To put things into perspective, the Australian stock market represents around 2% of the world's stock markets. When we look globally, a broad based world index holds over 1,500 stocks and exposure to over 20 countries around the world. The top 10 stocks make up just 18.50% of the index, with the top 5 sectors as follows:

Information Technology: 22.9%

Financials: 12.9%

Healthcare: 12.8%

Consumer Discretionary: 12%

Industrials: 10.60%

And here are you top 5 holdings:

Apple: 4.06%

Microsoft: 3.43%

Alphabet: 2.79%

Amazon: 2.60%

Facebook: 1.48%

Granted, the top 5 holdings are all technology stocks. My response would be that the weighting to each of these stocks is under half that of Australia's top 5. Further, these are the industries and companies that have been on fire since around 2015. Without offshore exposure, your portfolio would be left in the dust - how are your franking credits going anyway?

The world has changed from when my parents bought into the Telstra IPO. The way things work have changed. The way companies are run has changed. The way to access investments has changed. The one thing that hasn't changed, is the way investors invest. What got you here may not get you there.


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