Financials dominate the ASX200, comprising 35.4% of the index. This compares to 14.7% of the S&P500. Andrew Fleming, Deputy Head of Australian Equities at Schroders, points out, they are a big part of the index - because they make a lot of money. Here he questions whether this will continue.
Risks are clearly skewed one way, being down rather than up, from the starting point. The banks are not likely to make a lot more money than they do today in the future
In the short video above Fleming discusses this in more detail and also shares one simple strategy for achieving better diversification when investing in the ASX-listed banks.
My understanding is that Bank prices are cyclical around dividend dates etc - so they should be played as a cyclical stock. That being said, the dividends they produce will put a floor under the share price fro income investors. With increasing rates - sometime in next 2 (?) years - margins expand, so is not the risk to the upside, not downside as you suggest? Also I query your statement they make a lot of money - ROE for example is not outstanding. This seems to be the same mistake the SA and Federal Governments have made recently. The Banks in fact dominate the ASX in part because, apart from mining, we lack similar large scale companies in other sectors, such as Digital. But if have to agree that generally where the banks go, so goeth the ASX index.