Resources Now The Largest ASX Market Sector

This story features BHP GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BHP

The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Chris Shaw

It has taken 21 years to return to the top position but the resources sector has again become the largest sector on the Australian sharemarket, passing the financial sector that had until recently been far and away the market’s largest sector.

The CommSec economics team estimates as at yesterday’s closing prices the S&P/ASX300 Resources sector had a market capitalisation of $406 billion, slightly ahead of the $403 billion in capitalisation of the S&P/ASX300 Financials. As at January 1st this year the gap had been more than $160 billion in favour of the financials, which highlights where relative performance in the market has been centred in recent months.

Together the two sectors now account for about 52% of Australia’s total sharemarket capitalisation, which CommSec notes stood at about $1,542 billion as at yesterday’s close. But while each sector has about the same total market share within the sectors it is resource companies dominating as the broker notes BHP Billiton ((BHP)) is now capitalised at $160 billion and Rio Tinto ((RIO)) at $69 billion, while Commonwealth Bank ((CBA)) is the largest of the financials at $56 billion and National Australia Bank is capitalised at around $54 billion.

Factoring in the recent performances of the two sectors leads CommSec chief equities economist Craig James to suggest the financials have been oversold in the wake of the global credit crisis, so over the next year there should be a recovery in the share prices of banks, insurance and financial services companies.

At the same time he expects resource companies to continue delivering solid results as ongoing industrialisation in the BRIC nations (Brazil, Russia, India and China) means demand for raw materials will remain high, so supporting commodity prices and therefore share prices in the sector.

This has implications for the Australian market in terms of global investment as James points out Australian equities currently account for only around 2% of global market capitalisation, but continued outperformance by resource companies should see additional interest in the Australian market from global fund managers and this would be a positive for the Australian market overall.

According to James, the last time the resources sector was about the same size as the financial sector was in September 1994. The last time that the resources sector was clearly the largest on the sharemarket was over 21 years ago, just prior to the October 1987 sharemarket crash.

Click to view our Glossary of Financial Terms