Commonwealth Bank of Australia shares seen as materially overvalued amid ASX index fund weighting

The Commonwealth Bank of Australia (CBA) is trading at a price‑earnings ratio of about 31.7x, well above the banking sector average of 19x and more than double the global bank average. The bank accounts for roughly 10% of the ASX 200, making it the single heaviest stock on the Australian exchange.

Regal Partners’ Group Investment Director Charlie Aitken argues that this overvaluation is driven by the mechanics of index‑based superannuation funds, which automatically buy shares in proportion to a company’s market weight. With Australian super funds owning between a quarter and a third of the local share market, the continuous inflow of contributions pushes the price of the largest stocks higher regardless of fundamentals. The same index dynamics have forced a decline in CSL Limited, whose weight in the index fell after earnings downgrades, illustrating how passive investing can amplify gains for big banks while punishing other companies.