Big changes coming to Australia’s top companies

It may only be the start of the year but already the top end of the Australian market is set for some very large changes.

One is that what used to be known as the Big Australian – mining giant BHP (ASX: BHP) – is actually about to live up to the old advertising slogan by getting rid of its 20-year-old UK listing.

That means that the big international miner will suddenly represent a lot more of the Australian market – up from about 6% to 10% of the overall market and be our biggest company by a larger margin.

Indeed, BHP was already the second biggest company on the London exchange, behind pharmaceutical giant AstraZeneca, based on its dual listing which was initially introduced to cement the 2001 merger with South African company Billiton.

Farewell to Afterpay means hello to Block – and crypto

The other big change coming to the Australian market is the departure of Afterpay (ASX: APT) and the arrival of its acquirer Block as an Australian listed company on 20 January.

While nothing like the size of BHP, Block will still be an important addition to the Australian market because it will be the most significant listed cryptocurrency player as well as the biggest local player in the buy now pay later (BNPL) space after paying $29 billion to merge with Afterpay.

It also operates a large mobile payment and merchant services platform known as Square.

Block has a significant crypto business which made an impressive $2.5 billion in revenue from Bitcoin trading in its most recent quarterly result.

Block is also a big owner of crypto assets, with 8,000 Bitcoin and ongoing plans to develop a wallet for Bitcoin storage, a decentralised, open platform to exchange Bitcoin.

At this stage the major Australian crypto listing is the Betashares Crypto Innovators ETF (ASX: CRYP), which gives investors access to a range of crypto companies that make money from helping to build crypto infrastructure and a range of other crypto-based exchange traded fund (ETF) products are on the way.

However, the very presence of Block as a major company on the ASX should act as a kick starter for more crypto-styled companies – at least some of which have previously complained that the regulatory and listing environment in Australia is not friendly towards crypto companies.

That complaint now seems moot with the coming listing of Block.

BHP can now look after Australian shareholders better

Another aspect of BHP reverting to a single listed structure is that this should increase corporate flexibility and the tailoring of rewards for shareholders.

Immediately there will be more franking credits to go around, which are particularly helpful for Australian investors, and dividends could also increase due to the lower costs of only being listed on one exchange.

Buy-back schemes would also be much simpler and easier to implement and the capacity of BHP to use its own shares to take part in corporate activities such as takeovers will be much easier and simpler to implement.

A bigger BHP increases the concentration issue

However, a bigger BHP also brings with it a further concentration of value in the top 10 stocks, which are predominantly miners and banks and together make up about half of the total value of the companies in the ASX 200.

In some ways, that makes the Australian market more difficult to invest in because an ASX 200 ETF is actually half invested in just the top 10 stocks.

Should banks and miners hit rough times, the entire index will fall, even if the 190 stocks outside the top 10 are performing well.

That is not as extreme an example as you might think, particularly as the three big miners in the top ten companies – BHP, Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) – are all heavily exposed to iron ore mining in particular.

Given China is by far the world’s biggest consumer of seaborne iron ore and has long been trying to wean itself off Australian supplies, that is a serious risk that is probably under-appreciated by many investors who own an ASX 200 ETF.