The most popular index on the Australian Securities Exchange (ASX), the S&P/ASX 200, is more commonly known as the ASX 200. The ASX 200 is a composite of the 200 largest public companies by market capitalisation. It serves as a benchmark for Australia’s market, similar to the FTSE 100 and Dow Jones in the UK or the S&P 500 the US.
The ASX 200
The ASX 200 index tracks movements of top 200 companies by market capisation. This is the market value for the company’s outstanding shares. There are more than 2000 companies on the ASX. The ASX 200 index is Australia’s most closely followed index. It is made up of 200 companies that account for slightly over 80% of all Australian share market capital.
Every quarter, the composition of the index will be evaluated. Companies are promoted or delisted based on movements in share prices over the past six month or other eligibility criteria like the liquidity of shares.
What is the ASX 200?
The ASX 200 is comprised of 10 sectors including telecommunications, healthcare, and industrials. However, the ASX 200 is dominated in financial and resource stocks which account for over half its value. Close to 30% of the index’s value is made up by the financials category, which includes four major banks.
A few large companies dominate the index. The 10 largest companies make up over 40% of the index. The Commonwealth Bank, which accounts for more than 7 percent of the index’s total weight as of January 2020, is one of the most prominent listed companies. Investors should pay attention to the dominance of a few companies and the concentration in value in a few sectors when using the ASX 200 benchmark. A movement in banking stocks can have a significant effect on the overall index.
The Top 10 Companies
Commonwealth Bank
BHP Group Limited
CSL Limited
Westpac Banking Corp
National Aust. Bank
ANZ Banking Group
Telstra Corporation
Woolworths Group Limited
Wesfarmers Limited
Macquarie Group Limited
Why is the S&P/ASX 200 important
Around 80 percent of Australia’s $A2 Trillion share market is owned by the ASX 200 companies. The ASX 200 is a good indicator of Australia’s economy and serves as an effective proxy. It can also be used by investors and funds to benchmark performance.
How can you invest in the ASX 200
The main purpose of S&P/ASX 200, while it serves as an indicator of Australia’s market, is that it can also be used to help investors who are looking to gain exposure to large-cap Australian stocks. You can either invest in individual companies or one of these options:
Exchange-traded funds
Investors can also invest in exchange-traded funds (ETF). These funds track the ASX 200 overall and are traded as common stocks. Investors should carefully consider the ASX 200 sectors before investing in an ETF. Movements in financial or material sector may have significant impact on the ETF’s value.
Futures contracts
The ASX 200 can be traded using a standard futures contract. This is when you agree to exchange an index quantity with another party at a future date and price.
CFDs
CFDs or Contracts for Difference are similar to Futures Contracts. They allow investors to borrow the majority of the money in trades and provide significant financial leverage. CFDs are not subject to a future price or date, unlike Futures. CFDs are contracts to pay or get the difference between the time a trader begins the contract and the time they end it. CMC offers CFDs on a variety of indices including the ASX 200 and many instruments.
Other Australian indices
Accumulation Index
It is worth noting that the ASX 200 measures a price change. This is great for speculators who are betting on whether the price will rise or fall in hopes of making a quick return. However, it does not give investors the complete information needed to calculate total returns. They should look at the S&P/ASX20 ACcumulation Index which also includes dividends.
All Ordinarie
Australia’s second key market indicator is the All Ordinaries Index. This index includes the 500 largest listed companies on the ASX. This index differs from the ASX 200 because liquidity is not considered in eligibility. Market cap is the only criteria for companies to be listed.
Other
The S&P/ASX 20 Index consists of 20 stocks with the largest market caps. It follows the same liquidity guidelines that the ASX 200. This is the smallest index in the S&P Australian index group.
The S&P/ASX 300 Index offers additional depth and coverage than the S&P/ASX 200 Index, while maintaining liquidity guidelines.
The S&P/ASX Emerging Companies Index measures the performance of companies that are not ranked in the S&P/ASX 300.
The ASX 200 should be on your watchlist
The ASX 200 is a key indicator of Australia’s overall market performance. It tracks the performance of Australia’s largest companies. It is especially relevant for institutional investors as well as those who seek stability in their investments due to its strict liquidity guidelines.
