On Monday 3 April 2000, the Australian Stock Exchange (ASX), in
a joint venture with Standard and Poor's (S&P), introduced a
range of new stock market performance indexes.
The significant changes have been to redefine
the All Ordinaries Index (AOI) and to provide new indexes based
upon market capitalisation and liquidity.
Changes to All Ordinaries
In the September 1996 edition of this
publication, a feature article was published on the AOI. The
article explained how a company's inclusion in the index was
predominantly based upon its market capitalisation in relation to a
set of standards. As a consequence, the number of companies
comprising the AOI has varied over time between 229 and 330.
At the end of March 2000, the AOI comprised 251
stocks and accounted for 90 per cent of the capital value of the
Under the new regime, the AOI is comprised of
the top 500 stocks (representing 98-99 per cent of the market)
based solely upon market capitalisation.
It now mainly measures the price performance of
the stock market and, because of its increased coverage, can only
be considered a headline index. Its unsuitability for
benchmarking, due to this increased coverage, has required the
construction of new indexes.
In total, six new benchmarking
indexes(1) have been created to match the different
needs of the various types of investors. These indexes differ by
the number of stocks that are included and use market
capitalisation with an adjustment for liquidity as the basis for
determining eligible stocks.
To replace the benchmarking function of the old
AOI, two indexes in particular have been produced. These are the
S&P/ASX 200 and S&P/ASX 300 and comprise the top 200 and
top 300 companies respectively.
S&P/ASX 200 and S&P/ASX
The S&P/ASX 200 index is provided for
investors who are looking for a portfolio with sufficient market
capitalisation and liquidity to ensure relative ease of purchase or
sale. The 200 included companies account for approximately 91 per
cent of the market.
The S&P/ASX 300 index includes the companies
in the S&P/ASX 200 index and a further 100 companies. The extra
100 companies accounting for about 2 per cent of the market.
This index includes more smaller companies than
the S&P/ASX 200 index and is therefore a broader benchmark. It
is considered by the ASX to be at the limits for use by
Reviews of the Indexes
The ASX and S&P joint venture should ensure
the new raft of indexes will remain unchanged for at least three
However, the (headline and benchmark) indexes
will be reviewed quarterly. This review will assess the composition
of each index. Since the number of companies included in an index
is fixed, the addition of a company to an index will result in
another company being excluded.
The results of the next review will take effect
from 1 July 2000.
Which Index Replaces the AOI
The S&P/ASX 200 index has been widely
promoted as the new institutional benchmark and is expected to
become the benchmark for the futures market.
Fund managers and index managers, however, seem
to be leaning towards the S&P/ASX 300 index.
MESI Table 5.5
In previous editions of MESI, this table has
shown only the AOI. However, with the AOI now becoming a
headline index, a benchmark index in the form of
the S&P/ASX 200 index will also be shown.
These are the S&P/ASX 300, S&P/ASX 200, S&P/ASX
100, S&P/ASX 50, S&P/ASX 20 and S&P/ASX Small
This feature was prepared by Stephen Barber
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