S&P/ASX 200 Index

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Technical Analysis S&P/ASX 200 Index Futures


What is the S&P/ASX 200 Index

The S&P/ASX 200 Index is the benchmark institutional investable stock market index in Australia, comprising the 200 largest stocks by float-adjusted market capitalization. It is one of a number of indices published by S&P Dow Jones on Australian markets (called the S&P/ASX family of indices), but is considered the main benchmark of that grouping.

BREAKING DOWN S&P/ASX 200 Index

The S&P/ASX 200 is designed to measure the performance of the 200 largest index-eligible stocks listed on the Australian Securities Exchange (ASX) by float-adjusted market capitalization. Index constituents are drawn from eligible companies listed on the ASX. Companies have to be listed on the ASX to be included, but these can be either primary or secondary listings (a secondary listing is that by a company which has its primary listing in another country or on another exchange). All common and preferred stocks are eligible for inclusion, but hybrid stocks (securities that have some fixed income characteristics) are not.

The Importance of the S&P/ASX 200 Index

The rationale behind using float-adjusted market capitalization is to have a benchmark index that is tradable, thus suitable for use as a benchmark by large institutional asset managers. Stocks that have low free floats (i.e., they are tightly held) are hard to trade and not considered appropriate for inclusion in benchmark indices at their total market capitalization. Only stocks that are regularly traded are eligible for inclusion, to ensure that the index is liquid. The index publisher, S&P Dow Jones, thus describes the S&P/ASX 200 as being the preeminent Australian benchmark because it is representative, liquid and tradable.

The index was launched in April 2000, and is rebalanced quarterly to ensure the stocks included in the index meet the eligibility criteria. Despite the inclusion of 200 stocks, the index is dominated by large companies. As at May 2018, the largest 10 stocks in the index accounted for over 44% of the index. Five of these 10 stocks were banking groups, and financials in total accounted for just under a third of the index. The second largest sector was materials (resources), at 19%. In May 2018 the index had a trailing P/E ratio of 18.23 and a dividend yield of 4.16%.

There are a number of exchange-traded funds (ETFs) and exchange-traded notes (ETNs) based on the S&P/ASX 200, as well as futures, options and options on futures available for trading. A list of the investable products related to the S&P/ASX 200 is provided in the monthly fact sheet published by the index provider. The S&P/ASX 200 VIX index, also published by S&P Dow Jones, measures the 30-day implied volatility of the Australian stock market.