The Australian Stock Exchange (ASX) calculates and publishes a range of indices to aid clients in their investment and management decisions. Of these the most commonly quoted index is the All Ordinaries Index.
The All Ordinaries Index is a summary measure of the movement of share values that result when shares in company ownership held by individual and corporate stockholders are traded on the ASX.
In the context of the share market the All Ordinaries Index is used as an indicator of overall share market performance and of current trends. It provides a useful performance benchmark; a record of share market cycles; and an indicator of share market reactions to economic events and situations.
In a wider context the All Ordinaries index can be thought of as a reflection of the current and future health and wealth of the economy.
Graph 1 shows the All Ordinaries Index at the end of each month during the period since January 1958.
How the All Ordinaries Index is calculated
The All Ordinaries Index is based on the aggregate market value (AMV) of a wide selection of the companies quoted on the ASX. The market value, or market capitalisation, of any company in the All Ordinaries Index portfolio is the number of shares on issue multiplied by the current price per share in that company. The AMV of the All Ordinaries Index share portfolio is simply the sum of the market values of the companies included.
The All Ordinaries Index has been given a base value of 500.0 at the end of trading on the last trading day in December 1979. It was at this time that the ASX subsumed the operations of state-based exchanges.
Movements in the All Ordinaries Index since then have been calculated by multiplying the index by the ratio of current to past AMVs. Thus
Movements in the All Ordinaries Index in the period before 1980 have been calculated using movements in the older state-based indices.
Companies included in the index
There are currently over 300 companies represented in the All Ordinaries Index portfolio. To be included a company must have a market value of at least 0.2% of all domestic equities quoted on the ASX and must maintain an average turnover on the ASX of at least 0.5% of its quoted shares per month. These companies currently comprise nearly 90% of total market valuation.
There are a diverse range of companies satisfying these criteria and their market values vary widely. This means that share price movements for companies with larger capitalisations have a larger effect on the All Ordinaries Index than do smaller companies.
The All Ordinaries Index portfolio is updated at the end of every month to ensure that the companies included continue to meet the criteria for inclusion. It is also updated throughout the month when there are changes in the portfolio companies including delistings, additions and capital reconstructions. Recent examples of such changes are those caused by dividend reinvestment plans of Qantas Airways and the Commonwealth Bank and the share buy back scheme of the Westpac Banking Corporation. These changes affect the number of shares on issue for each of these companies and means that the index portfolio needs to be modified to maintain index consistency.
MESI Table 5.5
Monthly Economic and Social Indicators Table 5.5 shows the All Ordinaries Index at close of business on the last trading day for each month for the current financial year and the four previous financial years. These data are graphed to show the levels in the All Ordinaries Index over the time period.
Table 5.5 is updated monthly.
This feature was prepared by Greg Baker.