Changes to Stock Exchange Indexes
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 stock market.
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.
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 300
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 institutional investors.
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 years.
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
Ordinaries indexes.
This feature was prepared by Stephen Barber
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