News Corp is like the rampaging teenager that finally has outgrown the family home.
While it makes sense for News to be based in the US, it has implications for News shareholders and the structure of the Australian sharemarket.
The two classes of News shares combined represent 7 per cent of the Australian market, so if it is removed from the indexes it is something every fund manager active or index will need to manage closely.
But the fundamental question the News shift raises is one of diversification. The Australian market is about 2.3 per cent of world sharemarket values and, assuming the News restructure occurs the way Rupert Murdoch has proposed, a major international influence on our market may be removed.
Looking at the major industry sectors of the S&P/ASX300 index, the removal of News would see the media portion of the index fall 7.1 per cent. That would be redistributed across the other sectors, with big winners being the companies in the financial sector.
The financial sector, excluding property trusts, jumps 2.8 per cent and will represent slightly more than 38 per cent of our major index. So if News is removed from the index the influence of big banks on the Australian market rises further.
This strengthens the case for diversification into international markets. With the Australian market small and relatively concentrated, access to broader world markets has always made sense for a properly diversified portfolio.
Perhaps the move by News Corp will lead the way for individual Australian investors to also loosen the ties that bind us to home.
Robin Bowerman is head of retail at fund manager Vanguard Investments Australia. He can be contacted on robin.bowerman@vanguard.com.au.
