Market concentration for the ASX 200 has declined significantly in the past decade.
A new report from S&P Dow Jones Indices has identified increasing diversification in the local equity market over the past 10 years in contrast to global trends.
The firm said that diversification in the S&P/ASX 200 had improved both in terms of stock concentration and along sector lines at the same time as most other major equity markets globally had experienced increased market concentration.
The dominant financials, materials and energy sectors now collectively account for 53 per cent of the index, down from 67 per cent 10 year ago, including a 6 per cent drop for both materials and financials as well as a 2 per cent drop for energy.
Meanwhile, the weight of health care in the ASX 200 increased by 7 per cent alongside rises for information technology (4 per cent) and real estate (3 per cent).
“While the S&P/ASX 200 has become more diversified as a result of growth within newly emerging companies and sectors, growth in other markets was centered on previously large companies and sectors, which led to more concentration in the market overall,” said S&P Dow Jones Indices senior analyst Eduardo Olazabal.
Four of the five largest equity markets in the world recorded an increase in concentration during the past decade, with the UK being the only exception.
Comparing the S&P/ASX 200 with the S&P 500, Mr Olazabal said that the weight of materials and financials had declined across both indices while information technology had increased.
“However, the information technology sector had barely any participation in the S&P/ASX 200 10 years ago, which perhaps makes this change even more significant in Australia, given the small initial base,” he said.
The rise in information technology was most notable in the US with a 13 per cent increase in the sector’s weighting in the S&P 500 followed by China and Canada which both saw rises of 9 per cent.
Locally, the consumer discretionary and industrials sectors have both increased their weight in the S&P/ASX 200 by 1 per cent over the past 10 years, while communication services and consumer staples have remained flat, and energy and utilities have both declined by 2 per cent.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
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