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Why the ASX banks are weighing down the ASX 200

It wouldn’t have escaped the attention of most investors that the ASX is at all-time highs. The ALL ORDINARIES (INDEXASX: XAO) crossed the 7,000 point threshold for the first time ever last week. This week, the S&P/ASX 200 (INDEXASX: XJO) joined it there – also for the first time ever.

It’s worth noting that the ASX 200 almost got there way back in 2007. Back then, it seemed like 7,000 was on the cards after the index almost reached 6,700 points. But then the GFC happened and before too long, the XJO was under 3,200 points.

So it’s been a long way back to the top since, but here we are in 2020.

However, I’ve noticed that there’s one (rather large) chunk of the index that hasn’t been doing so well lately – the ASX banks.

It’s a big deal. Both the All Ords and ASX 200 are ‘weighted’ indices, which means that the largest companies in the index contribute a larger percentage of the gains or losses. Today, the ‘big four’ ASX banks are amongst the 6 largest positions in the ASX 200 by market capitalisation. In fact, Commonwealth Bank of Australia (AX: CBA) is the largest, with a 7.84% weighting.

CSL Limited (ASX: CSL) and BHP Group Ltd (ASX: BHP) make up numbers 2 and 3. But 4, 5 and 6 are Westpac Banking Corp (ASX: WBC) at 4.52%, Australia and New Zealand Banking Group (ASX: ANZ) at 3.89%, and National Australia Bank Ltd (ASX: NAB) at 3.87%. 

To be fair, the Commonwealth Bank share price has been performing very well over the last month. The current CBA share price is $84.05 – which is around its highest level in 3 years.

NAB, ANZ and Westpac, however, are all still at the lower end of their 52-week ranges. Westpac deserves a special mention for currently being at levels we last saw around 2012.

But let’s rewind to 2015 – a year of exceptionally high ASX bank share prices.

In that year, CBA shares saw a high over $95. Westpac shares were asking over $39, whilst NAB and ANZ were both hovering around the $37 mark. That almost seems inconceivable today, but around that same time the ASX 200 was struggling to break the 6,000 point ceiling.

So it’s clear that these days, the ASX 200 is being driven by companies like BHP and CSL. CSL’s rise to over $300 a share (with a $136 billion market cap) has been a sensational growth story over the past few years. High commodity prices have also pushed BHP to new highs.

Just imagine where the ASX 200 would be if our ASX banks were at their 2015 levels. It’s certainly food for thought!

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Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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