Australia Stock Market Index

Have you paid attention to the market indices before trading? Do you know what major stock market indices are? What is the S&P/ASX 200 INDEX?

What is an index?
An index is an indicator or measure of the statistical change in a hypothetical set of securities in a portfolio. Indices group the underlying securities by asset class, asset class segment (e.g., financials, energy, etc.), or other attributes (e.g., market capitalization, emerging markets), allowing investors to gain insights into the performance of a portfolio's returns.

Significant indices in the Australian stock market include S&P/ASX 200, All Ordinaries, ASX technology, etc. If you trade US stocks, you will probably follow the Dow Jones, NASDAQ, and S&P 500. If you trade AU stocks, you may follow one of the most popular indices of the Australian stock market: the S&P/ASX 200 index.

The S&P/ASX 200 (XJO) is Australia's leading stock market index and contains the top 200 ASX listed companies by float-adjusted market capitalisation. By January 2022, It accounts for 78% of Australia's equity market. Index components are derived from eligible companies listed on the ASX. Companies must be listed on the ASX to be included.

Why is the S&P/ASX200 index important?
Only frequently traded stocks are eligible for the inclusion to ensure that the index is liquid. Stocks with low free float (i.e., low trading volume) are difficult to trade and unsuitable for the benchmark index. For this reason, index publisher S&P Dow Jones describes the S&P/ASX 200 as a superior Australian benchmark because it is representative, liquid and tradable. Therefore, it is also well suited to benchmarking sizeable institutional asset managers.

The index was launched in April 2000 and is recalibrated quarterly to ensure that stocks included in the index meet the eligibility criteria. Although it contains 200 stocks, large companies still dominate the index. As of June 2021, the 10 largest stocks in the index accounted for more than 46% of the index. Four of these 10 stocks are banking groups, and financials make up a little over a third of the index. The second-largest sector is materials (resources) which account for 20.6%. In June 2021, the index had a trailing P/E ratio of 65.72 and a dividend yield of 2.8%.

What is the S&P/ASX 200 index investing
After getting a taste of what S&P/ASX 200 is, you may wonder how it can help with individual's investment. Don't worry, here we are. First, S&P/ASX200 can reflect the overall price changes and trends of the entire stock market. To a certain extent, it implicates the development of enterprises, industries, macroeconomics, and overall economic growth. Secondly, the stock index screens out quality companies in the market, which facilitates investors to track, replicate, and diversify their investments and reduces the informational cost.

As you can see in the chart above, the Australian stock market was affected by the Covid-19 and hit bottom in March 2020, when the overall stock market was in the doldrums. The market then recovered gradually and even performed better than the pre-pandemic era.

The graph below is the performance of S&P/ASX 200 ETF (IOZ) in the past five years.

The above is a brief introduction to the S&P/ASX 200 index. If there is anything you do not understand or would like to add, please feel free to comment to let us know. We'd love to read your insights and discuss your questions together.

Disclaimer:
Moomoo is an online trading platform offered by Moomoo Inc.. In Australia, financial products and services on moomoo are offered by Futu Securities (Australia) Ltd (ACN 095 920 648) , an Australian Financial Services Licensee (Licence No: 224663) regulated by the Australian Securities and Investments Commission (ASIC).

The content is provided for educational and informational use only. Any information and data used in the content are general in nature, for purpose of illustration only, have been prepared without any consideration of your investment objectives, financial situations or needs, and shall not be used to predict future results or trends. You should consider the appropriateness of the information having regard to your personal circumstances before making any investment decisions. No content herein shall be considered as a recommendation or solicitation for the purchase or sale of securities, futures, or other financial products or services (for whatever reason).

All information and data, if any, are for reference only and past performance should not be viewed as an indicator of future results. It is not a guarantee for future results. Investments in stocks, options, ETFs, and other instruments are subject to risks,  the value of investments may fluctuate and as a result, clients may lose the value of their investments. When trading in a margin account, clients may suffer losses greater than their original investments. Please consult your financial adviser as to the suitability of any investments.

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