Australia is a Western economy with vast natural resources. It also enjoys very healthy demographics. We analyze the 4 most important stock market indices in Australia.
Content
- Introduction
- S&P/ASX 200
- S&P/ASX 20
- MSCI Australia
- MSCI Australia 200
- Alternative Stock Market Indices to Invest in Australia
Introduction
When it comes to investing, there are very few countries more interesting than Australia. This is because Australia has features of both developed and emerging countries.
On the one hand, Australia is a Western, developed country. Therefore, it has some similarities with Europe and North America. But plenty of differences also exist.
First, Australia is located in the Pacific Ocean. That makes its economy much more integrated with Asian economies than its Western allies. In fact, Australia’s largest trading partner is China.
Second, Australia has abundant natural resources. Copper, nickel, lithium, silver, and gold. Australia is one of the largest producers and exporters of these commodities. Hence, the country can benefit a lot from inflationary pressures in the global economy and a boom in the commodities markets.
Finally, the demographic situation in Australia is significantly better than that of most European countries. Its population is younger and aging much more slowly, so higher economic growth and less pressure on public spending can be expected over the coming decades.
S&P/ASX 200
The S&P/ASX 200 is Australia’s most famous stock index. Also known simply as the ASX 200, the index is owned and published by S&P Dow Jones Indices. ASX is short for Australian Securities Exchange, the company that operates the most important stock exchanges in Australia, including Sydney.
Introduced in 2000, the index is made up of Australia’s 200 largest companies by market capitalization. Index weightings are based on the market capitalization adjusted for free float.
Because Australia is a relatively small country, and the number of stocks within the index is quite high, the ASX 200 includes both large as well as medium and small companies.
The two largest sectors within the index are financials, with many banks, and natural resources, reflecting the important role Australia plays in the global commodity market.
Additional details can be found on the official index website.
S&P/ASX 20
The S&P/ASX 20 is an alternative stock market index calculated by S&P.
The ASX 20 is composed of only the 20 largest listed companies in Australia. It follows the same methodology as the ASX 200, but the ASX 20 is concentrated in large cap stocks.
The ASX 20 is also heavily exposed to the financial and natural resources sectors. In fact, approximately 40% of the index is made up of companies in the financial sector, and another 20% of companies in the commodities sector.
Here is the link to the official website of S&P Dow Jones Indices.
MSCI Australia
The MSCI Australia is the main Australian stock market index that the US company MSCI calculates. This index contains all Australian companies that are part of the global MSCI World Stock Index.
Thus, the exact number of stocks within the index varies over time but is usually between 60 and 70. As a result, both large and medium-sized companies are represented. As you can imagine, the financial and natural resources sectors also dominate the MSCI Australia Index.
The MSCI Australia can be a very good alternative for those looking for an ETF. You will find more information here.
MSCI Australia 200
The MSCI Australia 200 is a very similar index to the S&P/ASX 200. Calculated by MSCI, it is made up of the 200 Australian companies with the largest market capitalization.
For this reason, it should come as no surprise that both the constituent companies and their corresponding weights within the index are virtually the same in the MSCI Australia 200 as in the ASX 200.
Therefore, if we want to focus our investment in this segment of the equity market, we have two alternative indices to look for when searching for a suitable ETF.
More information about the MSCI Australia 200 is available on MSCI’s website.
Alternative Stock Market Indices to Invest in Australia
Alternatively, if we want to invest in Australia, we can also look for a multi-country ETF where Australia is well represented. One good option is to look for an index made up of countries in the Asia-Pacific region.
This will allow us to diversify our investment, since we will also be putting our money in places like Japan, China, New Zealand, and Singapore.
If you found this post interesting, I encourage you to subscribe to my newsletter:
Clear Finances
Comments are closed.