ASX 200 Explained: Australia's Leading Stock Market Index

Among the indices tracking the Australian stock market's performance, the S&P/ASX 200 is the most renowned. It comprises the top 200 companies on the Australian Stock Exchange which accounts for approximately 90% of the exchange's total market capitalisation (April 2024).

Read on to learn more about the S&P/ASX 200, how it works, and other pertinent aspects of the Australian premier index.

Main Points:

• The most reputable and widely observed stock market index in Australia is the S&P/ASX 200 index.
• The S&P/ASX 200 index, tracks the performance of 200 top-performing companies on the Australian Securities Exchange (ASX).
• As of April 2024, the index has achieved an average annual return of 3.33% over the past decade, starting from April 2015.
• Traders can gain exposure to the ASX 200 through various financial instruments, including futures contracts, Contracts for Difference (CFDs), and exchange-traded funds (ETFs).

Understanding the Australia 200 Index (ASX 200)

The most widely followed stock market indicator in Australia is the S&P/ASX 200 index (XJO). It belongs to the S&P/ASX family of indices, managed and published by S&P Dow Jones, a company well known for creating and maintaining reputable stock market indices such as the Dow Jones Index.

The Australia 200 index (S&P/ASX 200) tracks different segments and sectors of the Australian economy. It provides traders, analysts and investors with valuable insights into the performance of Australia's domestic equity market. For institutional investors, it serves as the core benchmark for the whole Australian economy.

"S&P" is short for Standard and Poor, while "ASX" is the abbreviation for the Australian Securities Exchange, the primary stock exchange of Australia headquartered in Sydney.

What Is the Australian Securities Exchange

The Australian Securities Exchange (ASX) is a result of multiple independent exchanges across Australia coming together to become one. This happened in 1987 when the Australian Parliament passed legislation that combined the independent stock exchanges of six Australian states to become the Australian Stock Exchange. But the ASX, as we know it, was completed in 2006 when the Australian Stock Exchange and the Sydney Futures Exchange came together to form the Australian Securities Exchange.

The ASX in Australia is similar to the New York Stock Exchange (NYSE) in the United States, the London Stock Exchange in England, and the Hong Kong Stock Exchange in Hong Kong.

ASX's market capitalisation as of April 2024, sits around $8 billion and ranks as the 13th largest stock exchange globally.

History of the ASX 200 Index

The Australia 200 index traces its roots back to a time when the Australian share market lacked a comprehensive representation.

Initially, individual regional indices were the norm, until the emergence of the All Ordinaries Index in January 1980 which unified the Australian share market and later gained prominence as the primary institutional benchmark for the next two decades.

After the formation of the Australian Stock Exchange in 1987, the S&P suite of indices was created and the S&P/ASX 200 replaced the All Ordinaries as the new benchmark in April 2000.

S&P's reputation as one of the "Big Three" credit rating agencies reinforced the credibility and integrity of the new benchmark. By assuming responsibility for Australia's suite of indices, S&P propelled the S&P/ASX 200 index onto the global stage as the premier benchmark index for the stock market in Australia.

ASX 200 Performance History

Launched in April 2000, the S&P/ASX 200 began with an index value of 3133.3, matching the All Ordinaries Index value. As of April 2024, the index has had an annualised return of 3.33% over the past 10 years since April 2015 and is currently valued at 7,567.28.

The table below displays a decade-long performance history of the S&P/ASX 200's annual returns. The returns take into account both the capital gains resulting from changes in the index's price and the income received from dividends.

Why Is the S&P/ASX 200 Important?

• Institutional investors, analysts, and news outlets rely on the ASX 200 as the most trusted benchmark for the Australian equity market.
• The ASX 200 serves as a basis for investment products such as ETFs and as a point of reference for actively managed products designed to replicate or exceed Australia's stock market gains.
• The composition of the index is reviewed periodically based on market cap to reflect the accurate performance of the ASX 200.
• It comprises the most iconic companies in Australia including the 'big four' banks, CSL Limited, and the Macquarie Group LTD.
• It offers sector analysis and portfolio diversification for traders and investors.

Constituents of the ASX 200 Index

The S&P/ASX 200 index represents about 80% of the total market capitalisation of Australia’s Stock Exchange. The majority of companies in the index are Australian-based. However, fewer companies from other countries, such as the United States and New Zealand, are also included.

To remain relevant, the ASX 200 is reviewed quarterly in March, June, September, and December. In rare cases, like mergers or delistings, the index may be rebalanced off the regular schedule.

Criteria for Inclusion

The eligibility of a company’s stock into the ASX 200 hinges on three main criteria:

• Listing type: A company's stock on the Australian Securities Exchange (ASX) must be classified as common or preferred equity.
• Liquidity: The stock must be actively traded, with trading volume spread across a broad range of market participants. This ensures the stock is readily bought and sold.
• Market capitalisation: The company's market capitalisation, when adjusted for freely tradable shares (excluding holdings by large entities or recent share issuances), must rank among the top 200 on the ASX.

Sector Distribution of the ASX 200 Index

Classification within the ASX 200 follows the Global Industry Classification Standard (GICS) by organising companies into distinct sectors. It is worth noting that despite the material sector having the most number of companies in the index, the financial sector dominates the index by market capitalisation.

The following table shows how ASX 200 companies are categorised by sector in April 2024. Each sector has a unique identifier that begins with "X" for easy performance tracking.

The top 10 companies by Market Capitalisation

The table shows the top 10 ASX 200 companies by market capitalisation in April 2024.

Different Ways to Trade the ASX 200

Beyond its role as a benchmark for the Australian stock market, the S&P/ASX 200 provides traders with alternative means to gain exposure to changes in the price movement of the index. Therefore, traders may consider the following:

1. Trading the S&P/ASX 200 Futures Contracts.
2. Trading the S&P/ASX 200 CFDs.
3. Trading the S&P/ASX 200 ETFs.

Trading the S&P/ASX 200 Futures Contracts

S&P/ASX 200 futures contracts are agreements to buy or sell a set amount of the index at a specific price on a predetermined future date. If traders believe the index will rise, they can buy a futures contract, aiming to profit from it by selling it later at a higher price. Conversely, they can sell a futures contract if they anticipate a decline. Investors holding Australian stocks can also use the S&P/ASX 200 futures contracts to hedge against potential losses if the market dips. These contracts are traded on the ASX derivatives market, alongside options contracts.

Trading the S&P/ASX 200 CFDs:

When compared to futures contracts, S&P/ASX CFDs offer traders easier access and enhanced flexibility for trading. By trading the ASX 200 CFDs, you gain exposure to the underlying without owning it and the profits or losses are determined based on the difference between the entry and exit price of your CFD trades. Plus500 also provides share CFDs of companies within the S&P/ASX 200 index and other indices like the DAX 40 and Nikkei Index.

It is important to highlight that CFDs are leveraged instruments which means that the use of leverage can amplify profits as it magnifies potential losses.

To further explore how to trade ASX 200 CFDs, see our article: “Australia 200 Trading Guide: How to Trade the ASX 200”.

Trading S&P/ASX 200 Exchange-Traded Funds

Exchange Traded Funds (ETFs) offer a convenient means to gain exposure to the entire ASX 200 index. Since ETFs represent investment funds that track the performance of specific assets or indices. Therefore, traders can buy and sell the ASX 200 index ETFs on stock exchanges just like any regular stock.

How to View the ASX 200 Price Movement

The ASX 200 index fluctuates constantly due to several factors impacting the Australian stock market. These factors include the Reserve Bank of Australia (RBA) policies, inflation rates, commodity prices, and economic growth (GDP), among others.

You can monitor the live price of the ASX 200's index on the Plus500 trading platform. The platform displays the price movement of the index and provides valuable tools like sentiment data and relevant economic calendars for informed trading decisions.

How to Track the Live Price of the ASX 200 index CFDs in 3 Simple Steps:

1. Log into the Plus500 app or web trader platform.
2. Type “ASX 200” in the search bar to find the "ASX 200 index" among the country indices.
3. Select "ASX 200" from the drop-down list and the live chart will appear.

What Are Some Other Australian Indices

The Australian stock market offers a variety of indices for different purposes.

1. All Ordinaries Index: This broader index tracks the 500 largest ASX-listed companies, solely based on market capitalisation (excluding foreign-domiciled companies).


2. S&P/ASX 200 Accumulation Index: This index goes beyond the S&P/ASX 200 by incorporating dividends (profits paid to shareholders) into its performance calculation, providing a complete picture of total returns.


3. S&P/ASX 300 Index: Expanding on the S&P/ASX 200, this index includes 300 companies while maintaining sufficient liquidity (ease of buying and selling) for market participants.


4. S&P/ASX Emerging Companies Index: This index captures the performance of emerging Australian companies outside the top 300, highlighting potential growth opportunities.

Conclusion

Since its inception in April 2000, the S&P/ASX 200 index has consistently served as the premier benchmark for assessing the performance of the Australian stock market and its economic health. To qualify for inclusion in Australia's premier index, a company's stocks must meet stringent criteria regarding listing type, liquidity, and market capitalisation. Through various financial instruments such as futures contracts, Contracts for Differences (CFDs), and exchange-traded funds (ETFs), market participants can speculate on the performance of the index.

Frequently Asked Questions (FAQs)

What's the Biggest Company in the S&P/ASX 200 Index?

As of April 2024, BHP Group tops the list of companies in the ASX 200 index by market capitalisation of approximately AU$232 billion.

Does Market Capitalisation Reflect a Company's True Worth?

Market capitalisation may not always reflect a company's intrinsic value. However, it serves as a reliable indicator of a company's size and investors' sentiment.

Can I Earn Dividends from the S&P/ASX 200?

You cannot earn dividends by trading Plus500’s CFDs. You can only earn dividends from the companies within the S&P/ASX 200 index either by owning an S&P/ASX 200 ETF with dividend reinvestment or directly purchasing shares in companies listed on the S&P/ASX 200 and holding them past the ex-dividend date.