Concerns about a prolonged conflict in the Middle East have spurred investors to rapidly increase their holdings in Australia’s largest companies, marking the fastest rate of concentration since the global financial crisis. Data from VanEck indicates that the combined weighting of the top 10 stocks on the S&P/ASX 200 Index has surged from 45.6 per cent to 49.2 per cent in just four months. This surpasses the concentration seen during the COVID-19 pandemic and the initial months of the GFC.
VanEck’s head of Asia-Pacific, Arian Neiron, warns that this overcrowding is detrimental, amplifying risks for investors. He notes that passive investors and superannuation funds tracking the benchmark index are exposed to greater single-stock and single-sector risk than they may realise. As the Middle East situation escalates and oil prices rise, traders are gravitating towards the most liquid ASX stocks for easier potential selling.
This high concentration negatively impacts passive investors and super funds that mirror the ASX 200. The index has fallen 8 per cent since the war began in late February, driven by declines in major ASX companies. Eight of the ten stocks responsible for the most significant losses since the war are among the top 20 by market capitalisation, including BHP and Goodman Group, which have both dropped nearly 14 per cent, and National Australia Bank, which has fallen 16 per cent.
According to Neiron, investors should diversify beyond the ASX 200. Global X, an exchange-traded fund provider, reports increased inflows from industry super fund members into precious metals, Indian and European equities, and thematic exchange-traded funds. Global X senior investment strategist Marc Jocum notes that members are becoming more aware of concentration risks in traditional Australian equities-heavy portfolios as their balances grow.
