As far as breaking news goes, the quarterly review by S&P Dow Jones Indices to welcome – and kick out – index member companies will not shake anyone’s investment foundations.
Retrospective and already factored in by many institutional and sophisticated investors, the realignment of membership across some of these benchmark ASX indices – such as the S&P-ASX 100, S&P-ASX 200 and S&P-ASX 300 groupings – is nonetheless a great summary of where the Australian sharemarket is at.
Membership of each index is, for all intents and purposes, based on a company’s market capitalisation (yes, liquidity also plays a role) and therefore reflective of share price movements.
And following a week of significant economic and commodities turmoil that played out on the local bourse – think the downward trend in iron ore prices, more pain in lithium and a soaring gold price, not to mention weak Australian economic data – the index update provided by S&P on Friday afternoon makes for interesting reading.
The changes to its indices come into effect in a fortnight (September 23) though tomorrow will herald the first full trading session since the changes were announced. There will no doubt be some immediate impact as index-trackers who have not already adjusted their holdings do so now.
There was no adjustment in the S&P-ASX 50 in this quarterly review though if lithium and iron ore prices continue their negative trend, there will likely be some movement in three months’ time.
In the S&P-ASX 100, the swings and roundabouts in commodities were on show – Sandfire Resources (ASX: SFR), arguably the leading copper stock on the bourse, was promoted into the top 100 companies while Arcadium Lithium (ASX: LTM) loses its spot.
Just last week Arcadium, which is also listed on the New York Stock Exchange, said it would suspend mining at its Mt Cattlin lithium mine in Western Australia’s South.
Sandfire, meanwhile, is starting to hit its straps under managing director Brendan Harris, whose mantra of “boring and predictable” is proving popular with investors. Operations at Motheo (Botswana) and MATSA (Spain) are on the up and – dare we say – expectations of a resumption of dividend payments are again part of investor conversations.
As for why Domino’s Pizza Enterprises (ASX: DMP) lost its spot in the S&P-ASX 100, to be replaced by financial services play HUB24 (ASX: HUB), probably has as much to do with the quality of its pizzas as broader economic headwinds.
There were three additions – and therefore three relegations – from the S&P-ASX 200 index, which is often referred to as the Australian market’s benchmark index.
Taco specialist and ASX newcomer Guzman Y Gomez (ASX: GYG) is in alongside coal play Yancoal Australia (ASX: YAL).
The third newcomer is WA-focused gold producer Westgold Resources (ASX: WGX), which last month concluded its takeover of Canadian peer Karora Resources to become a more sizeable, 400,000ozpa player in Australian gold.
And gold, of course, is the commodity everyone is chasing – the precious metal spent the weekend above $US2500 an ounce, or about $3750/oz in our currency.
Among the three exclusions from the S&P-ASX 200 was Strike Energy (ASX: STX), which is struggling to retain investor traction with its Perth Basin gas development plans. The other two outs are digital property portal Domain Holdings (ASX: DHG) and infection prevention technology developer Nanosonics (ASX: NAN).
Commodity price cycles are not the only factor driving the ins and outs of various indices though – from a resources sector focus – dominate investor conversations.
No surprises then that newcomers to the S&P-ASX 300 include two copper plays – new ASX co-listing Capstone Copper (ASX: CSC) and Metals Acquisition (ASX: MAC) – as well as exploration success stories in gold (Spartan Resources; ASX: SPR) and niobium (WA1 Resources; ASX: WA1).
On the red side of the ledger – and goodbyes to – were Core Lithium (ASX: CXO), iron ore play Grange Resources (ASX: GRR) and graphite proponent Talga Group (ASX: TLG).
