Has the long-held concern of many investors, particularly those overseas, that the Australian share market is fraught with concentration risk finally been laid to rest? The reliance on the financial services sector, dominated by the four major banks, was a put-off. Add Telstra and about 40% of the Australian market was accounted for – a concentration risk many could not embrace.

The revelations of the Hayne Royal Commission have put paid to the banks and financial advisers. Telstra has succumbed to intense competitive pressures and lack of leadership. Commonwealth Bank, National Australia Bank and Telstra are all selling at 52-week lows and Australian & New Zealand Bank and Westpac closer to 52-week lows than highs. Throw in AMP for good measure and the S&P/ASX 200 index should also be plumbing lows according to history and the concentrated risk believing investor. But that is not the case.

The resilience of the Australian market and the change in leadership has been a revelation. The resources sector has been supportive led by heavyweight BHP Billiton which now sits second on the market capitalisation list behind a stumbling Commonwealth Bank. Telstra now finds itself outside the top 10. CSL sits at fourth, not in the top 10 a year ago, having seen its market capitalisation increase by over 40%, driven by its global market leadership in blood products. Both Macquarie Group and Insurance Australia Group are up 28% - shooting stars in the beleaguered financial services sector. Heavyweight consumer staples Wesfarmers and Woolworths, both near 52-week highs and sitting in the top 10, were supportive.

But it has been a diverse group of outperforming companies in terms of their operations and size adding invaluable support to the benchmark including, Aristocrat Leisure, ASX, BlueScope, Computershare, Flight Centre, Goodman Group, Iluka, Origin Energy, Qantas, REA Group, ResMed, Santos, SEEK, Seven Group, Treasury Wine Estates, Woodside Petroleum and WorleyParsons, among many others. It has been a real “team” effort. Several of the above-mentioned companies have been active with share buybacks, making increases in market capitalisation even more impressive on a reduced share count.

While the local market has shrugged off the underperforming big five, the major banks and Telstra, one wonders at what level the Nasdaq Composite and S&P500 would be at if the FANGs were trading at or near their 52-week lows. There is more than a modicum of concentration risk in these markets as well, but conveniently overlooked.

Santos sends Harbour packing

Without any competition from a third party, the private equity funded Harbour Energy, made five offers for Santos. The initial confidential offer made on 14 August 2017 was at an indicative price of A$4.55 per share. This was increased to US$4.98 (A$6.50 equivalent) per share on 29 March. Based on the increased indicative offer, the board considered it was in the best interests of shareholders to engage with Harbour and allowed Harbour to undertake confirmatory due diligence.

On completion of due diligence, Harbour made a binding, conditional offer on 17 May at an unchanged US$4.98 per share. This was increased to US$5.12 per share on 19 May and again on 21 May to US$5.21 (A$6.95 equivalent) per share. The last offer could be tweaked to A$7.00 if Santos agreed to “extend certain oil price hedging arrangements”.