Share Market
indexes and sectors


Share markets (stock markets, commodity markets, etc.) around the world are
forums for the orderly trading of shares in companies, currencies and commodities.

These markets have market indexes to show an overall view of the market, or a portion of the market.
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Australian share market indexes

A share market index basically summarises the value and performance of a group of companies in the share market. The two most common ones on the Australian market are the Top 200 index (S&P/ASX 200, or XJO), and the All Ordinaries (actually the top 500 stocks, or XAO). More information about these at right.

General information about our share market indexes at www.asx.com.au.

Australian market sectors

The market indexes mentioned above, and described at right, are known as capitalisation indexes. There are other types of indexes, including sector indexes. In Australia we use the GICS system to classify companies according to their principal activities and to allocate them to a market sector (more about GICS below).
 
Australia's Top 200 stocks (the constituents of the S&P/ASX 200 XJO index) are allocated to one of eleven* GICS sectors, so that investors can more easily see the performance of a company relative to it's own sector index (ie. relative to it's peers, and to similar companies in other markets).
 
The eleven* GICS sectors are (see GICS details below):
  • Energy
  • Materials
  • Industrials
  • Consumer Discretionary
  • Consumer Staples
  • Health Care
  • Financials
  • REITs
  • Information Technology
  • Telecommunication Services
  • Utilities
In addition to the above official GICS sectors, some organisations also refer to the following GICS sub-sectors:
  • Australian REITs
  • Financials excluding A-REITs
  • Metals and Mining
* - Note that for a number of years there were only 10 GICS sectors, but this was revised effective 31 August 2016 to break out the REIT sub-sector from within the Financials sector, to be a sector of its own. See an official announcement from S&P Dow Jones.

Market indexes and sectors explained (download).
See introductory information about market indexes and sectors in this 3-page (free) downloadable PDF document.
(To Be Revised for details of 11 sectors, not 10.)


More information from Standard & Poors about the Australian market indexes at au.SPIndices.com.

More about share market indexes
and index rebalancing

See www.asx200.com for index rebalance news.
 
See more information about the indexes (and index rebalancing news) at the Australian Market Index website, and also at S&P Dow Jones Indices.
 
From time to time, the list of stocks in each share market index is revised. Remember that there are rules that determine which stocks are eligible for listing in each index, and as time goes by, the eligibility of any one stock can change.
 
The most common way that this change comes about is due to the daily share market actions and the resultant market capitalisation of each stock. If a stock in the Top 200 index suffers a massive share price fall, then it might end up falling off the bottom of the list of stocks.
 
Company mergers can also trigger removal from an index.
 
Standard & Poors manages the rules for indexes, and reviews the index constituent list each quarter or half-year (depending on which index). See the recent announcements on index rebalancing here. Index rebalance announcements are made by S&P on the first Friday of March, June, September and December. The XJO is rebalanced each quarter, and the S&P/ASX 300 twice yearly in March and September.

GICS codes

GICS codes - Information about the Global Industry Classification Standard coding system in relation to the various indexes and security groupings used in the market. It can be very beneficial to understand how GICS codes are allocated to stocks, because it often happens that like-coded stocks move together in the market.
Note that changes were made (effective after 31 August 2016) to more clearly differentiate Real Estate Investment Trusts (REITs) by allocating them to their own sector - see details at S&P.
More information at Wikipedia.com.
Links and Downloads:

Market Averages

The term market average has been used for many years to refer to a stock market index. Charles Dow referred to the major market indexes as the market averages in his day (late 1800s).
Also see Robert's information on Dow Theory.

These days it is acceptable to refer to a market index as a market average

Which stocks are in each index? 

*** Free downloads for Toolbox Members ***

Robert's monthly updated lists of 
"Which stocks are in each index?"

are available here for download.
These lists are in CSV format to download and view
for use in further analysis.

About the Australian indexes

Market capitalisation - This is a measure of the "size" of a company. It is simply calculated by multiplying the current share price by the number of shares on issue. On the Australian market, the largest company by market capitalisation is currently BHP. We could easily produce a list of all stocks on the market sorted by "market cap". Understanding this idea will help to understand the discussion below about the market indexes.

A note about "top stocks" - When we say that an index comprises the "top stocks" in our market, it does not mean each and every stock within the list of top stocks. For example, the XJO index (S&P/ASX 200) comprises a selection of the "top 200 stocks" in our market by capitalisation, as at the latest rebalancing (quarterly for the XJO). Any stock which does not qualify for listing in this index (eg. due to not enough liquidity) is excluded from the index. So, the "Top 200" index might be a selection of 200 stocks from the top 300 or so on our market.

The "Australian share market" - We often hear a reference to the Australian share market without any other qualification. On some radio stations and some TV stations, this will be a reference to the S&P/ASX 200 index, while on others it is a reference to the All Ordinaries index. Seesome details about this in the following paragraphs.

See charts of the Australian indexes at ASX.com.au.

ASX Indexes - Composition (download) 
How are all the ASX indexes, and sub-indexes, made up?
Which stocks are in which index?
How does the S&P/ASX 200 index (XJO) compare to the All Ordinaries index (XAO)?
and to the S&P/ASX 300 (XKO)?
What about the S&P/ASX Mid-cap 50 (XMD)?
The 2-page PDF file "ASX Indexes - Composition" gives a good diagrammatic overview, and lists some of the stocks in each index.


XJO - S&P/ASX 200 index - This is basically the top 200 stocks in the Australian share market. That is, the top 200 by market capitalisation. It is the investable benchmark for the Australian equity market. The S&P/ASX 200 is comprised of the S&P/ASX 100 plus an additional 100 stocks. Source - www.asx.com.au.
See more information at www.marketindex.com.au/methodology.

XAO - All Ordinaries index - This is basically the top 500 stocks in the Australian share market. The index is made up of the weighted share prices of about 500 of the largest Australian companies. Established by ASX at 500 points in January 1980, it is the predominant measure of the overall performance of the Australian share market. The companies are weighted according to their size in terms of market capitalization (total market value of a company's shares). Source - www.asx.com.au.
See more information at: www.marketindex.com.au/methodology.

VIX - Volatility indexes

The VIX Volatility index has existed in the US for quite some time. It is basically a measure of the amount of fear in the share market. Introduced in 1993, the Chicago Board Options Exchange (CBOE) Market Volatility Index (VIX) is regarded as a "key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices" (source and more details: www.cboe.com). Other volatility indexes index, including the relatively new Australian market VIX.

ICB codes

The ICB system (Industry Classification Benchmark) is a classification system somewhat similar to the GICS system, and uses a system of 10 industries, partitioned into 20 supersectors, which are further divided into 41 sectors, which then contain 114 subsectors (see Wikipedia for details). This system is not in widespread use in Australia. The 10 industry classifications are:
  • Oil & Gas
  • Basic Materials
  • Industrials
  • Consumer Goods
  • Health Care
  • Consumer Services
  • Telecommunications
  • Utilities
  • Financials
  • Technology

Major market indexes
and stock exchanges

The orderly trading of shares, currencies, futures or commodities happens in a market, but more specifically in an exchange

The two columns at left focus on aspects of the Australian share market, and some of the indexes in the Australian market.

Around the globe there are many other markets / exchanges - some are share markets, and some commodity markets - and across those markets there are many, many different indexes that summarise the performance of a selected group of stocks, or commodities.

Some major market indexes

From time to time you might here something on the radio or TV regarding stock market performance. The following might help you undertand a little more about what they are talking about.

"Wall Street" - Some of the stock market reports (in Australia) loosely refer to "Wall Steet". This is usually a reference to the Dow Jones Industrial Average index (see more below).

SPI - This is usually a reference to the Australian Share Price Index futures contracts (the ASX SPI 200 Index Futures), and the value is often quoted in the mornings before the Australian market opens. Many people suggest that it is an indication of the likely opening level of the Australian market. However, in this regard it is not very useful or helpful for the average retail investor.

Here is a list of some of the more closely watched market indexes:

  • Dow Jones Industrial Average (DJIA) - This index is often just referred to as "the Dow" and is comprised of only 30 major stocks from the US market (from the - NYSE - New York Stock Exchange and the Nasdaq). See more details.
  • Dow Jones Transportation Average (DJTA) - This index represents twenty key transporation companies in the US. See more details.
  • S&P 500 index - This is a broader market index covering 500 major US stocks from the NYSE and Nasdaq. See more details.
  • US Russell 2000 index - This is a small-cap stock market index, managed by the Russell Investments company. See more details.
  • NASDAQ index - This is an index representing a selection of technology stocks, and is managed by Nasdaq OMX.
  • German DAX
  • French CAC-40
  • London FTSE
  • New Zealand NZ50
  • Hong Kong Hang Seng
  • Chinese Shanghai Composite.

Some major stock exchanges

Here is a list of just some of the major stock exchanges around the world, with links to more details about each exchange:

For a longer list of stock exchanges around the world, see Wikipedia.org.

Other stock exchanges

Some major commodity exchanges

Here is a list of some of the major comodities exchanges around the world, with links to more details about each exchange:

Index rebalancing

As mentioned in the left hand column, market indexes need to be rebalanced from time to time. When the constituent stocks in a share index fall out of favour, and the share price falls, the market cap falls and can end up with a low market cap that no longer qualifies to be in the index. 

There are rules for rebalancing market indexes, and the rules vary from market to market, and from index to index.

For example, the US Russell 2000 index is rebalanced annually as at 30 June (see more details).

Australian index history
and timeline

Introduction

Some of the Australian share market indexes as we know them today have existed in their current basic form since only 1980. And some have been created in the years since.

This explains why it is difficult (perhaps impossible) to obtain market index history that is any older than what is readily available.

The information at right is a brief timeline of the key multiple share markets and indexes in Australia.

More information

More history at: www.ASX.com.au.

Also www.stockmarkets .com.au

And at Wikipedia.

Early history

  • 1861 - The Melbourne stock exchange commences, founded in the gold rush enriched Melbourne..
  • 1871 - The Sydney exchange commences.
  • 1882 - The Hobart exchange commences.
  • 1884 - The Brisbane exchange commences.
  • 1887 - The Adelaide exchange commences.
  • 1889 - The Perth exchange commences.
  • 1903 - The first interstate conference meeting of representatives from the state-based exchanges.
  • 1937 - The Australian Associated Stock Exchanges (AASE) established, and common rules and regulations are agreed among the state exchanges.
  • 1960 - The Sydney Greasy Wool Futures Exchange begins trading. It later becomes the Sydney Futures Exchange (SFE).
  • 1980 - Australian Stock Exchange (ASX) replaced the Sydney and Melbourne exchanges.
  • 1980 - The separate Melbourne and Sydney stock exchange indexes were replaced by the Australian Stock Exchange indexes.

Modern history

  • 1st April 1987 - Government legislation enabled the amalgamation of the six independent state-based exchanges into the Australian Stock Exchange Limited.
  • 1987 - The all electronic trading system (SEATS) established.
  • 1989 - The chalkies who record stockbrokers' bids and offers on chalkboards are superceded by the introduction of computerised trading systems.
  • 1990 - SEATS was well and truly bedded in, and the chalkies on the exchange trading floor ceased to operate.
  • 1998 - The ASX exchange forms a listed company to trade on it's own market.
  • 2000 - The S&P/ASX 200 (XJO) index established.
  • 2006 - Sydney Futures Exchange (SFE) merged into ASX.
  • 2010 - The market supervisory powers are transferred from ASX to ASIC. And ASX retains the oversight of operating rules and compliance.
  • August 2016 - Revision to GICS sectors by taking the REIT sub-sector out from within the financials sector, and allocating it as a sector of its own, making a total of 11 GICS sectors. See more details above left.
Source: ASX.
More history at: www.ASX.com.au.
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