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Commodities

The 100-Year Tug-of-War: Resources vs Finance

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By James Cooper, Wednesday, 19 February 2025

Geologist James Cooper reveals the surprising shifts in Australia’s stock market over the past century. As resources lose ground to finance, history suggests a potential comeback. Is the ASX on the brink of another major transformation? Read on to find out…

Most assume the Aussie share market is pegged to resource stocks. You only need to take a quick look at the ASX100 to understand why…

According to the S&P, materials and energy stocks comprise about 22% of Australia’s largest companies (by market capitalisation).

While significant, historically speaking, it’s never been this low!

Here’s a graph from the RBA going back more than a hundred years to show you what I mean. It tracks the sector weighting across Australia’s top 100 companies:

Fat Tail Investment Research

Source: RBA: A History of Australian Equities

As you can see, the resource market’s weighting in the Aussie market (brown) has fluctuated wildly over the last century.

It sank as low as 10% in the 1930s Depression (red circle to the left) and rocketed as high as 65% in the late 1960s.

But there’s a clear trend underway…

Resources have been playing a diminishing role in the Aussie market over the last several decades.

So, what’s going on?

Is the ASX still a resource-driven market?

Mining Memo’s Take

One could argue that the Australian economy is ‘growing up.’

In other words, the country’s banking and finance industries are maturing and expanding, helping drive a larger share of market capitalisation into this sector over resources.

Today, finance dominates the top 100 stocks with around 40% of the overall market share.

But look to the left of the chart; the finance sector (purple line) has been here before… This sector dominated the Aussie market throughout the roaring 20s and 30s.

And given that finance has again reached this historically high level, one could argue that it’s due for a ‘rebalancing’ event.

An event that could see resources ‘re-capture’ a larger share of the Aussie equity market.

Resource Reversal

In 2019, resources fell to just 15% as a share of the top 100 stocks on the ASX.

But what’s important is that we’ve only been at these historically low levels twice in the last hundred years!

The first was during the Great Depression when mining’s share of the Aussie market was just 10%.

Then, there was the late 1990s when mining’s share fell to around 15%.

As you might recognise, both periods preceded a boom in commodity markets.

The 1930s low was followed by 40 years of concentrated resource growth in the Aussie market. That eventually culminated in the Poseidon nickel boom of 1969.

Then, there were low commodity prices in the late 1990s.

That was followed by the China-led infrastructure boom, which led to higher mining stock valuations and mining’s larger capitalisation within the Aussie equity market.

These are two critically important periods for resource investors to understand.

In my mind, a major sector rotation could be unfolding…

From the banks to the miners

While that’s difficult to see in real-time, past events help us formulate future probabilities.

In other words, the changing fabric of Australia’s equity market over the last century suggests mining stocks could be poised for much higher valuations.

Of course, that can only come through HIGHER commodity prices. We’ll explore why that’s getting MORE likely over the coming months.

Now, before I leave you, I want to give a quick shout-out to everyone who sent in feedback and potential discussion points for future Mining Memo updates.

It’s great to see that you’re getting something valuable from these updates. That will spur me to find more useful tidbits to share!

Until then.

Regards,

James Cooper Signature

James Cooper,
Editor, Mining: Phase One and Diggers and Drillers

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

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James Cooper

James Cooper has been a working geologist in mines across Australia, Canada, and Africa since the early 2000s. He’s led the operations of tiny explorers through to huge producer outfits. He’s seen booms and busts firsthand and he also understands the cyclical nature of individual commodities. For example, James was right there when Barrick Gold launched an enormous $7.5 billion takeover bid for Equinox. That was the peak of the last cycle.

With his background as a geo and finance professional, he brings a unique insight and experience to Fat Tail Investment Research. He writes the broader resource-focused investing letter Diggers and Drillers and the ultra-speculative explorer-focused trading service Mining: Phase One.

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All advice is general in nature and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

The value of any investment and the income derived from it can go down as well as up. Never invest more than you can afford to lose and keep in mind the ultimate risk is that you can lose whatever you’ve invested. While useful for detecting patterns, the past is not a guide to future performance. Some figures contained in our reports are forecasts and may not be a reliable indicator of future results. Any actual or potential gains in these reports may not include taxes, brokerage commissions, or associated fees.

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