Commonwealth Bank has rarely looked more expensive, and it keeps climbing. CSL, a business investors prized for decades, has fallen to lows it has not seen in ten years. Regal Partners’ Charlie Aitken says one force helps explain both, and it is sitting inside most people’s super.
Every payday, contributions flow into superannuation and into index funds, and index funds buy shares in proportion to a company’s size, not its value and not its price. The biggest stocks are bought the most, whatever they cost. Australian super funds now own between a quarter and a third of the local share market, so those flows move it. The largest companies keep getting larger by weight, almost regardless of what is happening inside the business.
Commonwealth Bank is the clearest example on the way up.
It is the single heaviest stock in the ASX 200 at about 10% of the entire index. It trades on around 25x earnings, more than double the global bank average of roughly 11 times and well above its own long-run level, a multiple similar to or higher than Apple, Meta and Amazon even though its earnings grow at low single digits. Aitken calls it “materially overvalued,” and says little changes that without a downturn Regal does not expect.
“You’d need a serious recession with large, bad, and doubtful debts,” he said. “That is not a scenario that Regal believes in.”
CSL shows the same force in reverse, Aitken explained.
After an earnings downgrade and about US$5 billion in impairments tied to its Vifor acquisition, the stock has fallen roughly 46% in 2026 to decade lows, and analysts have cut their price targets from about $289 to near $196.
When money leaves the index, passive funds sell the biggest names in proportion, whatever the value on offer. A good business falls through what Aitken calls “air pockets,” because the holders on the way down are not there to buy the dip.
None of this makes index investing a mistake, and Aitken does not argue that it is. Over long periods, most active managers fail to beat the index after fees. S&P’s latest Australian scorecard shows a majority of funds falling short of their benchmark in every category over the past decade, and more than 95% of global share funds underperforming over 10 and 15 years. Low cost is why default super leans on the index in the first place. He adds that the more money that buys the index without looking at price, the further price and value can drift apart at the top.
For someone whose super sits in a default option, this means an outsized holding in a small number of names, Commonwealth Bank chief among them, built for them by the way the index is weighted rather than by any judgment about whether the price is fair.
The Reserve Bank has flagged the scale of the system behind those flows, a superannuation pool now worth about $4 trillion, or roughly 150% of the economy, as something that can amplify market moves in both directions. Commonwealth Bank reports its full-year result in August, the next test of whether the price the index is paying is one the business can support.
