What is ASX 200 IndexThe ASX 200 is an index of 200 stocks of companies with the highest market capitalization listed on the Australian Securities Exchange. Because it represents the biggest companies in the country, the ASX 200 serves as a definitive, credible barometer of Australia’s economy. It is effectively the benchmark stock market index for the Australian stock market. The ASX 200 was inaugurated on March 31st, 2000, when Standards & Poor took over its maintenance. It replaced the All Ordinaries index to become Australia’s primary investment benchmark, and it currently accounts for over 80% of the Australian equity market. The ASX Index was created to provide a highly liquid tradable index with low turnover. This has allowed the index to serve as a benchmark for not only investment returns, but also for the construction of further S&P/ASX 200 indices and ETFs, such as the ASX/SPI 200, ASX/SPI 200 Growth, ASX/SPI 200 LCSI and ASX/SPI 200 VIX. The ASX 200 launched at a price of 3133.3, which was the same value of the All Ordinaries on March 31st, 2000. It is currently trading at circa 5900 (February 2018), just below the psychological 6000 level. It crossed 6000 for the first time since the Global Financial Crisis of 2008 in October 2017. Its all-time high of 6749 was posted in October 2007, just before the GFC.
Why Trade the ASX Index
- Liquidity: The index offers high liquidity thanks to the level of activity that takes place among the numerous stocks that constitute it.
- Smooth Price Action: The index has a smooth price action and is less prone to market shocks, as no one stock can significantly influence its overall price.
- Vast News Coverage: The index is the most traded in Asia and enjoys interest from investors all over the world. This ensures that it enjoys massive news coverage, which makes both technical analysis and fundamental analysis all the more easier.
ASX 200 Trading Information
- MT4 Symbol: SPI200
- Trading Time: Monday – Friday 10:00 – 16:00 Australia/Sydney Time (GMT + 11)
- Country: Australia
- Currency: AUD
- Exchange: ASE
ASX Index Composition and CalculationThe ASX 200 is both a capitalization-weighted and float-adjusted index. Market capitalization (number of shares multiplied by the share price) determines inclusion into the index, and by being float-adjusted, the ASX 200 factors outstanding shares held by the general public, excluding those held by government, insiders or royalty. Like all indices, ASX 200 is measured in points and tracks the overall price movements of the 200 companies within the index. To be included in the index, a company’s stock must meet the following 3 ASX 200 requirements:
- It must be listed on the Australian Securities Exchange as an ordinary or preferred stock.
- It should be sufficiently liquid; this liquidity must not be controlled by a small section of investors.
- Its float-adjusted market capitalization must be among the 200 highest on the Australian Securities Exchange, excluding strategic holdings or new shares issuance.
|Name of Company||Industry||Weight (%)|
|Westpac Banking Corp||Financials||11.3|
|BHP Billiton Limited||Materials||10.08|
|ANZ Banking Group Limited||Financials||8.96|
|National Aust. Bank||Financials||8.43|
|CSL Limited||Health Care||6.78|
|Wesfarmers Limited||Consumer Staples||5.35|
|Telstra Corporation||Telecommunication Services||4.58|
|Woolworths Group Limited||Consumer Staples||3.78|
|Macquarie Group Limited||Financials||3.6|
The Factors Influencing Overall Index Price of the ASX 200Due to its composition, various factors (both internal and external) affect the overall price of the ASX 200. To start with, the ASX 200 is predominantly composed of financial and material stocks; thus, industry performance will have a significant bearing on the price. For instance, 4 out of the top 5 companies on the ASX 200 are financial institutions, and a significant price change in one of the major stocks, or an overall change in industry sentiment, will impact the index’s price. Financial stocks have also proven to weigh much on the ASX 200, as the index posted a 54% plunge over 16 months during the GFC. Economic factors, such as interest rates, economic outlook and inflation, also impact the ASX 200 price. Interest rates usually have an inverse relationship on inflation, and this reflects on the stock market. The Reserve Bank of Australia may raise interest rates to control inflation, and this will lead to low general stock prices, thus impacting the ASX 200. Internal and global stability also impact the index. While Australia’s is generally a stable economy, shocks emanating from the global arena may impact its major index. The country is a major player in the global economy, with strategic economic ties with both the West and China. Events on the global economic scene, such as military tension, market crashes and elections impact sentiment on Australia’s stock market, which will manifest in the price of its major index.
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SPI 200 Trading Main FAQs
What is the SPI 200?The SPI 200 is the Australian benchmark index that is more commonly known as the ASX 200 or the S&P/ASX 200. It is a capitalization and float weighted index and tracks the movement of the top 200 Australian stocks, effectively keeping a finger on the pulse of the Australian economy. The index has a 35% weighting in the financial services, mostly from the inclusion of the Big Four Banks (Commonwealth Bank, Westpac Bank, National Australia Bank, and Australia New Zealand Bank) and a 16% weighting in basic materials, which reflects the huge mining industry present in Australia.
Why should I trade the SPI 200?As a good representation of the overall Australian economy the SPI 200 can help provide diversification to a portfolio. It can also allow for some speculation on the Chinese economy, since China is the largest trade partner of Australia and many Australian stocks will rise when China is posting good economic data. European and North American investors may like to invest in the SPI when their own markets aren’t performing well since the Australian market doesn’t tend to be too heavily correlated with moves in European markets or on Wall Street.
What is the best strategy for trading the SPI 200?The SPI 200 is an index that tends to spend most of the time trending either up or down. Periods of sideways consolidation for the index are few and far between. This means traders should adopt a trend following strategy. It’s also notable that the index has been trending steadily higher over the past three decades. With this being the case it can be useful to primarily trade the long side of the market, and to look for reversals when the index is moving lower for an extended period of time.