If you ever want a quick read on how the Australian stock market’s travelling, you don’t need to dig through endless charts or complicated indices. Just look at Commonwealth Bank.

Yep: CBA is now a basic proxy for ASX 200.

That’s not just a throwaway observation, either. Ask any pro investor trying to beat the market these days, and they’ll tell you that CBA’s weight in the index has made it almost impossible to ignore.

As fund manager Jun Bei Liu from TenCap put it on Switzer Investing TV this week:

“For fund managers, we’ve got a benchmark - the ASX 200 - and CBA is a big part of that index. I can’t just sell it unless I find something that’s going to do even better than CBA. So it’s a bit different.”

In other words, even if you think it’s expensive, you’re stuck holding it. Because if you’re managing money against the benchmark, CBA’s dominance now forces your hand.

The data also bears out the observation that the CBA share price now essentially tracks the index (or is it vice versa?). A cursory glance at the last six months of market performance shows that CBA and the ASX are basically paired. At least they are since Trump's Liberation Day tariffs sent money scurrying out of the US and other risk-heavy areas and into markets like Australia.

The blue represents CBA over the last six months, and the red represents the ASX 200. As you can see, since around April 7 - Liberation Day - the fate of CBA has been intertwined with the local index:

The offshore ETF flood keeps pushing it higher

But it’s not just local fund managers driving this. The real kicker here is what’s happening offshore.

Global investors and passive funds are still piling money into Australia, often automatically buying whatever sits at the top of the index, usually through index funds. And CBA is sitting right there, front and centre.

Jun Bei again:

“We’ve had so many foreign investors buying CBA because it represents the Australian index. Our economy is OK. At the same time, the Aussie dollar is so cheap, and investors think it’s a good chance to buy some of these things.”

And even a small tilt from international money into Australia has an outsized impact here. As Liu explains:

“More recently, we’ve seen a lot of flow move out of the US. The US has been more than 50% of the global market. And they’re nervous, with tariffs and things going on, so they’re just moving a little bit outside. And even a little bit means a lot when it comes to our small market. Naturally, they buy more CBA, more Brambles, more Wesfarmers. That’s why you’re seeing those stocks being so strong.”

Medallion Financial’s MD Michael Wayne sees exactly the same thing happening from the ETF side of the ledger:

“Whether it’s the passive flow of money into ETFs, or the lack of alternatives in Australia, that’s potentially a reason. Foreign money has also come in. The Australian dollar has held up relatively well. The Australian market has held up relatively well.”

So between global flows flooding our market, local managers stuck matching benchmarks, and a limited pool of large-cap alternatives, CBA keeps soaking up capital.

Can the CBA share price keep going higher?

This is where things start to get interesting. Because while everyone agrees there’s plenty of money chasing CBA, there’s also no denying that it’s looking pretty stretched right now.

As Liu puts it:

“The best thing it will do is probably just grind higher. It might underperform a bit compared to the rest of the market, but I think the share market overall will go higher. CBA might just grind a bit higher—it is expensive—but I don’t think it’ll have a substantial fall.”

So she’s not calling the top, but also not expecting fireworks.

The valuation tells the story. Right now, CBA is trading on a price-to-earnings (P/E) ratio of 31.77. At that kind of premium, you’re basically paying for perfection. Either earnings need to grow a lot faster than anyone expects, or you need even more capital flooding in to push the price higher. And that’s where things get tougher.

Wayne doesn’t sugar-coat it:

“It does beggar belief in many ways, just looking at the valuation it trades on: relative to its earnings growth and dividend per-share growth, which have been fairly anaemic. There’s no doubt that, relative to other banks globally, CBA is expensive.”

He’s not wrong. While CBA’s business is incredibly solid with dominant market share, strong capital position and reliable dividends, none of that easily justifies 32 times earnings forever. At some point, something has to give: either earnings growth accelerates, or the multiple contracts.

For now though, the flows keep coming. And as long as the rest of the world sees CBA as Australia’s proxy blue-chip, the index-following money keeps piling in.