- An RBA study of corporate Australia over the last 100 years has revealed some surprising trends among companies, with the stock market looking surprisingly similar to how it did 100 years ago.
- The makeup of the sector is almost identical to what it was a century ago, with big banks and big miners dominating then as they do now.
- What has changed is the number of banks Australia once had, dwindling from 26 at one stage to the five that feature on the ASX 200 today.
It was Mark Twain who reputedly once remarked, ‘History doesn’t repeat itself but it does rhyme’.
When it comes to money and markets it’s no different, with the Reserve Bank of Australia (RBA) this week releasing a 100-year study of the Australian stock market.
While it’s impossible to say what the future will bring, it is interesting to look back and see how much the present shares with the past.
This is what you need to know.
1. We didn’t have a national stock market until very recently
Despite the Australian stock exchange (ASX) being synonymous with the national market today, it didn’t even exist until the ’80s.
Before that, there were a handful of state-based exchanges in Australia’s major cities like Melbourne and Sydney.
In 1987, those were all bundled together into the ASX we know today.
2. This year’s bumper returns are actually trailing the historical average
By many measures, the Australian economy is at a unique point in its history.
Approaching three decades of consecutive growth — the longest period of prolonged economic expansion on record — Australia’s economy is finally slowing down.
Interest rates have been cut to their lowest level in the country’s history and concerns abound for the trade spate raging between China, our biggest trading partner, and the US.
Despite all of that, Australia’s top 100 companies are up 8.6% over the last 12 months, not far below the 10.2% annualised returns we’ve seen over the last century.
3. By sector, the stock exchange looks almost identical as it did 100 years ago
While Australia of the early 1900s might have looked very different to today, the relative size of its company sectors has barely changed at all.
“More than half of the modern stock exchange (by market capitalisation is comprised of financials (particularly banks) and resources companies (particularly miners). Strikingly this was also the case 100 years ago,” author and RBA economist Thomas Matthews writes.
That’s despite huge fluctuations over its history, particularly in the resource sector as seen below.
A rapid expansion of resource companies during the ’60s saw the sector triple in size, dwarfing the more recent boom around the 2000s.
4. Australia’s big companies are basically the same
Unfortunately, Australia’s reputation for oligopolies — think the big four banks’ 80% share of the housing market — has a long history, the study showed.
“In many cases, the exact same companies (albeit following some merger and acquisition activity) still dominate the exchange,” Matthews found.
The Bank of New South Wales, for example, was founded all the way back in 1817 making it the first corporate venture in the state.
Following consolidation and a name change, Westpac remains the country’s second-largest bank and its fourth biggest company.
Or consider ANZ, the sixth biggest company in Australia, formed when the Bank of Australasia and Union of Australia Bank merged.
In their day, they were the fourth and fifth biggest companies respectively.
Equally the three biggest corporates today — BHP, the Commonwealth Bank, and Rio Tinto — were all founded more than 100 years ago.
That’s quite different from the overseas experience.
“In contrast, only one of the top 10 US companies in 1917 is still in the top 10 today,” Mathews observes.
5. We have less big banks today than we did
Yet despite the endurance of the big banks, we used to have a lot more.
In 1893, Australia was home to no less than 26 separate banks.
The ensuing banking crisis that year would see half of those swallowed up by rivals.
As they consolidated they grew to dominate stock exchanges around the country.
“By 1917 there were thirteen banks trading in Australia, of which eight appeared in the top 100 companies on the Sydney stock exchange,”
Half a century later that number would shrink to six, and the subsequent banking boom in the ’80s and ’90s largely benefited the big four that exists today.
The Bank of Queensland remains the only other bank other in the ASX200 today.
6. Australian companies are some of the world’s oldest
Clearly, old companies have fared well in this country.
In fact, Australian corporates age much better than the rest of the world in terms of age.
“By market capitalisation, the average listed company in Australia today is 105 years old, compared with 77 years in Japan, 82 years in the United States and 95 in the United Kingdom,” Matthews writes.
The takeaway for budding business owners chasing success? You should have probably started out 100 years ago.
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