A recent Australian Equity Strategy note from UBS highlights key shifts in the ASX 200. Traditionally viewed as a ‘boring market’ dominated by banks and miners, the composition has evolved significantly. Materials and Energy stocks, which accounted for 80% of the market in the early 1980s, now represent just 20%. A landmark change occurred in 2024 when ‘growth stocks’ exceeded ‘value stocks’ in weighting for the first time on record.
Over the past two decades, ASX-listed businesses have become less capital-intensive and more efficient. Mega-cap miners demonstrate tighter capital discipline and reduced earnings volatility. REITs are focusing on leaner asset management, while the big four banks have streamlined operations by offloading sprawling branches and commercial properties. Retailers also manage inventory cycles more effectively.
Despite the market trading at a PE ratio above its long-run average (18.5x vs. a LT average of approximately 16x), UBS argues that this premium is largely structural and warranted. The report emphasizes that today’s companies possess stronger balance sheets, better returns on assets, and expanded offshore growth opportunities, further supporting the higher valuation.
