..if CBA price is driven largely by influx of foreign funds and passive investing via ETFs, over-concentraton without due regard to valuation fundamentals is certainly not healthy.
..but who is complaining- certainly not Matt Comyn who must be laughing all the way to the bank (punt intended). CBA at $300b may not be a sign of a healthy ASX
Fund manager Martin Currie argues the combination of huge passive buying and low turnover in Commonwealth Bank shares points to unhealthy signs in the Australian sharemarket.
Updated Jun 4, 2025 – 4.52pm,first published at 3.48pm
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If nothing else, the submissions to the Australian Securities and Investments Commission’s inquiry into private markets prove one thing: local participants are brilliant at talking their own book.
While this column has applauded ASIC chairman Joe Longo and his team for putting the microscope on a sector that is increasingly important to investor returns and the plumbing of the local economy, few of the 50-odd submissions take the debate further. Most acknowledge the growing importance of private markets while generally pushing back on the need for increased regulation, disclosure or even the collection of data.
Many of the submissions focus not on private markets, but on the other question posed by ASIC’s probe: how healthy are Australia’s public markets?
This concern may seem a little incongruous on the day that the ASX 200 climbed within 0.3 per cent of its all-time high, thanks to yet another surge in the share price of Commonwealth Bank. The country’s biggest stock rose just over 1 per cent on Wednesday to become the first company in Australia to have a market capitalisation above $300 billion.
But CBA’s surge, and what it means for the health of the market, was actually a topic of discussion in several submissions to ASIC.
Private credit giant Apollo Global Management, one of the few major private capital giants to actually bother to make a submission, noted that Australia’s public market had followed a similar pattern to equity markets around the world by becoming increasingly concentrated.
“In Australian equities, the top 10 constituents of ASX comprise about 47 per cent of the ASX 200 index, meaning that investing in the ASX 200 is largely a concentrated investment in the big four banks and a small number of large resource stocks such as BHP and Rio Tinto,” Apollo notes.
This should be recognised for what it is – a push for the diversity of private markets. But that doesn’t make it any less relevant. CBA’s weighting in the ASX is a staggering 11.8 per cent and Apollo is right – buyers of the index are heavily exposed to our biggest bank. Questions for investors and the market
Perhaps we’re lucky that CBA is a stock that is uniquely representative of the backbones of the Australian economy – residential property and small business. We’re definitely lucky we’re putting so many of our eggs into the basket of one of the country’s top management teams, which takes its responsibilities to customers, shareholders and the broader community extremely seriously.
But the sheer size and scale of the world’s most expensive bank in history is creating some fascinating questions for individual investors, and the market more broadly. Fund manager Martin Currie, which manages $6 billion of local equities, suggests CBA is an example of how price discovery is becoming weaker in the Australian sharemarket.
Martin Currie’s submission led by portfolio manager Naomi Bant says CBA’s turnover velocity – which is the annual turnover of the stock compared to its market capitalisation – has fallen from 50 per cent before the pandemic to about 30 per cent for today.
That fund argues that “for Australia’s largest stock this is an unhealthy signal” given it is well below the index average of 60 per cent turnover velocity and offshore comparisons; in the US, the average stock has a turnover velocity closer to 100 per cent.
What concerns Martin Currie is the combination of low turnover velocity and high levels of passive buying – more than 25 per cent of the daily volume in CBA. This is further compounded by superannuation funds that want to stick as close as possible to the broader index.
S&P index weights, the fund says, do not take into account low levels of liquidity. So as more money pours into passive strategies, and these strategies automatically buy more CBA shares to match its high market weighting, concentration in a relatively illiquid stock gets worse, and price discovery gets weaker.
Broadly, this trend can lead to “potential squeezes on stocks and changes in market dynamics”, Martin Currie says. For example, the firm says stocks with high passive buying and low turnover “exhibit four times the price reaction to earnings revisions compared to the market average of 0.6 times for other stocks. This suggests significant price distortion.”
The firm’s point, in the context of the ASIC inquiry, is that a market with weaker price discovery may find it harder to attract primary and secondary listings.
But there’s arguably a bigger question for listed companies and investors: is the concentration of money pushing CBA through the $300 billion barrier really a sign of healthy market?
