Last updated: June 7th, 2024
As you deepen your interest in investing, you’ll find that indices play an important role in understanding the Australian market’s buoyancy (or bearish-ness). But maybe you’ve wondered, what exactly is the ASX 200?
Over 2,000 individual companies are listed on the Australian Securities Exchange (ASX).
It helps investors identify and observe the leading corporate players that shape our financial landscape.
(Related: eToro Review: Pros, Cons, Fees & Verdict)
What Is The S&P/ASX 200 Index?
The S&P/ASX 200 is an index that tracks the top 200 companies listed on the Australian Stock Exchange by market capitalisation and liquidity.
These companies account for almost 80% of the market’s value.
Important!
Launched in 2000, the S&P/ASX 200 index is now the most trusted benchmark for the Australian equity market’s performance.
It is used by retail and institutional investors, analysts and the media to gauge what’s happening across the market more broadly.
(Related: How To Buy Microsoft Shares In Australia).
Why Is The S&P/ASX 200 Index So Popular?
Indices like the ASX 200 can provide the basis for investment products such as ETFs, or a point of reference/comparison for actively managed products designed to replicate or exceed market gains.
Identifiable by the symbol XJO, the ASX 200 index:
- Is weighted by market value and float-adjusted. The ASX calculates market capitalisation by multiplying the previous day’s last traded price of each company’s shares by the total number of securities on issue that are available for public trading.
- Is rebalanced quarterly, which means the index creator S&P Dow Jones checks how well the make-up of the index reflects the top 200 companies by market cap and liquidity and adds or removes companies accordingly.
- Uses both percentages and points to express changes in its overall value. Price movements of shares tracked by the index may be described as a percentage (or a points) gain or loss. For instance, after news in July that the CPI fell, the ASX 200 gained 62.30 points (0.85%), bringing it to 7402.00 points and setting a new 100-day high.
Important!
Float-adjusted means only ordinary shares are included in the market cap calculation, the most common type of security issued to shareholders.
Which Companies Are Included In The ASX 200?
Companies included in the ASX 200 change over time because fluctuations in share prices affect their market cap. Smaller companies are included and excluded, depending on how their fortunes change.
(Related: Will The Australian Dollar Rise In 2024?)
Meanwhile, a familiar cadre of Australia’s most iconic and valuable companies form a permanent presence near the top of the index:
- The ‘big four’ banks: CBA (ASX: CBA), NAB (ASX: NAB), Westpac (ASX: WBC), and ANZ (ASX: ANZ).
- Pharmaceutical and biotech company CSL Limited (ASX: CSL).
- Australia’s premier investment banking and fund management provider: Macquarie Group LTD (ASX: MQG).
Important!
The 10 largest companies by market cap in the ASX 200 account for almost half of the weight (46.8%). That means the performance of major players has a bigger effect on the overall index performance.
What sectors make up the ASX 200?
Companies listed on the ASX are categorised into 11 sectors.
Defined by the GICS (Global Industry Classification Standard), they can be charted the same way as an ordinary stock, allowing investors to perform technical analysis studies and, theoretically, identify the best opportunities while mitigating risks.
They are:
| ASX Code | Sector | Description | Examples Of Top Stocks | Est. % of ASX 200 |
|---|---|---|---|---|
| XFJ | Financials | Big four banks, insurance, other major lenders. | CBA, NAB, ASX | 27.9% |
| XMJ | Materials | Mining companies, fertiliser and chemical manufacturers. | Orica, Amcor, BHP | 24.6% |
| XHJ | Health Care | Pharma, pathology and biotech companies. | ResMed, CSL and Cochlear | 9.7% |
| XNJ | Industrials | Construction, transportation and engineering companies. | Qantas, Transurban | 7% |
| XRE | Real Estate | Commercial, industrial and residential real estate companies. | Mirvac, LendLease, Westfield | 6.1% |
| XDJ | Consumer Discretionary | General retail, travel, restaurants & gaming. | Harvey Norman, Crown | 6.5% |
| XEJ | Energy | Explorers and energy producers. | Santos, Woodside | 6.1% |
| XSJ | Consumer Staples | Food and beverage production. | Woolworths, Westfarmers | 5.3% |
| XTJXIJ | Communication Services | Carriers, distributors and resellers. | Telstra, Airtasker | 4.1% |
| XIJ | Information Technology | Software developers and IT consultancies and distributors. | Dicker Data, Xero | 2.4% |
| XUJ | Utilities | Major gas and electricity retailers. | AGL, APA Group | 1.5% |
(Related: Cheapest Stock Brokerages In Australia).
Why are the GICS sectors important?
GICS sectors provide a framework for grouping Australian companies with similar business activities. This facilitates a more precise view of sector-specific trends which, in turn, aids:
- Portfolio diversification. You can reduce the risk of a downturn within any one sector by spreading investments across various industries or sectors.
- Better strategy. You can make better investment decisions by understanding how economic events shape developments in a particular sector. (For example, in the inflationary, high-interest rate environment of 2024, investors may find the consumer staples sector attractive as consumers look for ways to reduce household costs).
(Related: Will The Interest Rates Rise In 2024?)
What Is The Total Market Capitalisation Of The ASX 200?
Market cap refers to a stock’s total market value, calculated by multiplying the number of shares by the trading price.
(Related: Guide To Investing In Australian Stocks).
The approximate market cap of ALL top 200 companies on the Australian stock market is 2.46 trillion as of July 2023.
- The biggest company in the S&P/ASX 200 index by market capitalisation is BHP Group ($232b).
- The smallest company in the S&P/ASX 200 index by market capitalisation is Skycity Entertainment Group ($1.6B).
Important!
A market cap-weighted index reflects equity value rather than real-world value. The two might be closely aligned, or the share price might be inflated beyond what a company’s balance sheet would suggest its worth is (e.g., due to strong forecasts or investor demand).
Is The ASX 200 Safe?
You might feel ‘safer’ investing in the top echelon of companies on the Australian market because many of these companies have a proven track record of generating revenues and profits.
(Thus their higher market capitalisation).
Important!
However, a company’s stability or long-term share value isn’t guaranteed by its inclusion in the ASX 200. Global markets rise and fall based on speculation as much as the underlying fundamentals.
What Are The Best Alternatives To The ASX 200?
Apart from the ASX 200, the ASX has indices that cover the top 20, 50, 100, 300 and 500 companies by market cap.
(Related: How To Invest In Futures).
Indices based on asset classes, investing strategies, and different sectors are also available (more about these shortly). Globally, well-respected alternatives to the ASX 200 include:
| Index | What Is It? |
|---|---|
| NASDAQ Composite | Index of more than 2500 stocks listed on the NASDAQ stock exchange. |
| FTSE 100 | Index of top 100 companies, by market cap, listed on the London Stock Exchange. |
| S&P 500 | Index of top 500 companies in the US, as selected by the S&P Committee. |
| Dow Jones Industrial Average | Index of 30 blue-chip stocks in the US. |
| Nikkei 225 | Index of 30 blue-chip stocks in the US. |
| HANG SENG | Index of 60 largest companies that trade on the Hong Kong Exchange. |
Important!
To compare returns from the ASX200 to the S&P 500 or NASDAQ, review the underlying index methodologies and composition first. While the ASX 200 is heavy on the financials sector, the top 500 US companies are more diversified and globally significant (e.g., Amazon).
How Do Investors Use The ASX 200?
Retail investors can use the ASX 200 to:
- Monitor the market’s movements day-to-day and over time.
- Benchmark the performance of their portfolio.
- Research investment decisions or guide rebalancing.
For instance, comparing the ASX 200 to other country-wide indices, especially in the dominant US market, can indicate how Australian business conditions are being influenced — or will be influenced — by leading global companies and macroeconomics.
Related: What Is The Average Salary In Australia?)
It also helps investors determine where to invest. For instance, whether you’d be better off allocating more of your portfolio to US shares.
Important!
The ASX 200 surpassed the ASX All Ordinaries Index (which tracks the top 500 largest companies) as the preeminent index in Australia, primarily because it’s a more accurate representation of liquid, tradable market value.
What Is The Best Way To Invest In The S&P/ASX 200?
Investing in the ASX 200 is easy. Reputable managed funds and exchange-traded funds (ETFs) track the index, such as:
- SPDR S&P/ASX 200 Fund (STW).
- iShares Core S&P/ASX 200 ETF (IOZ).
- BetaShares Australia 200 ETF (ASX: A200).
Index funds or ETFs tracking the ASX 200 offer diversification across 200 holdings with one trade.
This is a popular option among investors looking to hold investments for the long term, as markets have been shown to outperform active fund managers over longer timeframes.
(Related: How To Invest Money In Australia).
You could also buy individual shares of companies in the ASX 200.
Important!
Stock picking gives you control, but it’s less convenient and takes more time to manage than a passive fund or ETF.
When is the best time to invest?
Given that investing in the ASX 200 is often a long play, you may benefit from a dollar-cost-averaging approach. Dollar-cost averaging is a strategy where:
- You make regular small payments over a period of time rather than lump sums.
- You reduce the average price paid per share/unit by spreading spending out, limiting the impact of market volatility.
What are the top reasons to invest in the ASX 200?
- Diversification: Broad market movements may be less volatile than the ups and downs of individual shares.
- Low Cost: Index-based ETFs typically have low annual management fees and no minimum investment amounts, making it inexpensive to invest in the ASX 200.
- Tax efficiency: Fewer trades mean index funds and ETFs may be more tax efficient, compared to active fund management.
- Dividends: Many companies included in the ASX 200 pay dividends, which means investing in the ASX 200 through a fund will deliver income yield as well as capital gains.
(Related: 13 Best Trading Platforms In Australia).
What Is The Typical Return On ASX 200 Investments?
Australian stocks have returned around 10% over long periods (taking dividends into account) — making investing in the ASX 200 potentially worthwhile if you plan to invest for years.
What are the largest highs and lows of the Australian stock market index?
Some of the most tumultuous periods for the ASX 200’s value included:
- The Global Financial Crisis of 2008: when the ASX 200 returned minus 38.4 percent for the year.
- The COVID-19 pandemic: Early 2020 marked a high of 7,199 points, but the ASX 200 experienced a major downturn once the pandemic struck soon after. It lost more than a third of its value, dropping to 4,800 points. Dire, considering the index’s starting point was 3,331 points back in 2000.
According to the ASX, the index has historically delivered its best returns in the year following a crisis. Evidence of this is that in August 2021, it bounced back to a high of over 7,600 points.
At the time of writing, it’s just over 7,400 points.
What Did The ASX 200 Return Over The Last 10 Years?
Investing in the ASX 200 10 years ago would have netted you 8.56% gains, which includes capital gains of 4.14%. An investment of $1,000 10 years ago would now be worth $2,273.
Reinvesting dividends back in the stock market over the same period would have further compounded gains.
Important!
Previous performance is not a predictor of future returns. Consult a professional finance advisor before you buy or sell shares.
When does the ASX open?
The ASX trades Monday – Friday between 10 am and 4 pm AEST. The ASX is closed on public holidays.
| Public Holiday | Is The ASX Open? |
|---|---|
| New Year’s Day | Closed |
| Australia Day | Closed |
| Easter Monday | Closed |
| Good Friday | Closed |
| ANZAC Day | Closed |
| King’s Birthday | Closed |
| Christmas Day | Closed |
| Boxing Day | Closed |
| Final Business Day Before Christmas | Closes Early |
| Final Business Day Of The Year | Closes Early |
Final Word On Investing In The Australian Securities Exchange.
We hear about share market ups and downs every night on the news.
The ASX 200 puts the ‘market’ in context, because it represents just 10% of publicly-listed companies that collectively account for 80% of the Australian market’s value.
(Related: How To Invest In Index Funds).
Knowing what the ASX 200 is — how it’s calculated and the companies it comprises — helps you approach share trading with greater confidence.
Jody
Nelson says:
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John Keys says:
CMC Invest are an abysmal in turning around new accounts.
Over 1 month to setup up an account with an investment trust, and still waiting. I was promised 5 business days.
Reg Watson says:
Given that China’s economy is going down the toilet how the heck do we expect an appreciation of the Aussie in 2024 ? We are tied to China.