“Institutional investors look carefully at the liquidity of companies they invest in,” says Vynokur. “The more liquidity a company has, the more buyers it potentially attracts. In turn, that creates more liquidity again, and potentially a rising share price and capital-raising opportunities.”

Early inclusion in ASX sharemarket indices can be an attraction for NZ companies that dual or sole list on ASX. Being part of a prominent index, such as the S&P/ASX All Technology index, attracts investment from index funds that replicate that index. BetaShares’ S&P/ASX Australian Technology ETF (ATEC) tracks the S&P/ASX All Technology index.

Active investors, such as fund managers and superannuation funds, are influenced by indices. An active fund will have an overweight, underweight or neutral position in companies in their underlying benchmark index. That means all companies in the index are on the fund’s radar.

Vynokur says BetaShares’ S&P/ASX Australian Technology ETF acts as an additional pool of liquidity for 74[1] Australian and NZ tech companies that met the index’s screening criteria. The ETF has $219 million of net assets.[2]

“Investors who want diversified, cost-effective exposure to ASX-listed tech companies can get that through ATEC. As funds flow into ATEC, that capital is invested into tech companies in S&P/ASX Tech index.  Globally, ETFs are contributing to higher liquidity of companies in indices.”

ETFs are the fastest-growing investment product on ASX. The combined market capitalisation of ASX-quoted ETFs rose 74% to $116 billion over 12 months to end-July 2021[3]. About $31 billion of that is invested in Australian equities.[4]

The message is clear: NZ companies that want to target Australian or global ETF investment in ASX-listed equities benefit from inclusion in ASX sharemarket indices. To achieve inclusion, a NZ company must be dual or sole listed on ASX and meet an index’s screening criteria.

Vynokur says ASX is a ‘natural roll-up point’ for share liquidity in Trans-Tasman markets. “Liquidity tends to migrate to the exchange where liquidity is highest. That said, higher liquidity in a company on one exchange can create higher liquidity on another.”

Vynokur says BetaShares supports ASX’s move to build a larger technology presence on its exchange, and to make it easier for investors to own a portfolio of tech companies through the S&P/ASX All Technology index, which launched in February 2020.

“We want to see more Australian and NZ tech companies meet the criteria for inclusion in that index. That will add to diversification in ATEC for investors.”

NZ companies in ASX indices

ASX is optimised for early-stage growth companies. The minimum market capitalisation for entry into the S&P/ASX 300 index is around US$300 million[5].

Market capitalisation in the S&P/ASX All Technology Index ranges from $74 million to $27.9 billion.[6] This means emerging NZ companies that list on ASX have the potential for index inclusion, provided they meet other investability criteria for the index.

Early entry into a globally recognised index, such as the S&P/ASX 200 index, can attract institutional investment in companies sooner – and be a channel to access global capital. About 45% of institutional ownership in the ASX 200 is from overseas institutions.[7]

Twenty-two NZ Companies are part of the All Ordinaries Index, which represents 500 largest companies.[8] Ten NZ companies are included in the S&P/ASX 300 index and eight are in the S&P/ASX 200, which is one of the world’s pre-eminent sharemaket indices.[9]

NZ companies in the ASX 200 index[10] include:

• The A2 Milk Company (ASX: A2M)
• Auckland International Airport (ASX: AIA)
• Chorus (ASX: CNU)
• Fisher & Paykel Healthcare Corporation (ASX: FPH)
• Fletcher Building (ASX: FBU)
• SkyCity Entertainment Group (ASX: SKC)
• Spark Infrastructure Group (ASX: SKI)
• Xero (ASX: XRO).

NZ companies in the S&P/ASX All Technology Index[11] include:

• Laybuy Group Holdings (ASX: LBY),
• Pushpay Holdings (ASX: PPH),
• Volpara Health Technologies (ASX: VHT)
• Xero.

Understanding liquidity and index inclusion

NZ companies targeting ASX index inclusion through a dual or sole listing on ASX should be familiar with S&P/ASX Australian Indices Methodology.

With liquidity, only securities that are regularly traded are eligible for inclusion in any S&P/ASX index. A stock’s liquidity is measured relative to its peers. Different liquidity thresholds for indices apply.

Michael Orzano, Senior Director, Global Equity Indices at S&P Dow Jones Indices, says a dual listing allows a NZ-based company to be eligible for both the S&P/NZX and S&P/ASX benchmarks. “This results in the company reaching a wider pool of investors particularly given the growth of index-linked products tracking these indices,” he says.

Split liquidity across exchanges is a consideration for dual-listed companies. For example, with the S&P/ASX 200 index, S&P counts ASX liquidity for inclusion in that index, but not NZX liquidity.

Orzano says split liquidity does not necessarily make it harder for companies to make an index in one market. “A dual listing allows a company to reach a wider pool of potential investors and often results in higher total liquidity for the company’s shares measured across both exchange venues.”

Orzano says foreign companies are typically represented at a reduced weighting factor compared to domestic companies. 

“For example, in S&P/ASX benchmarks, the float of a foreign company is calculated based on the number of CHESS Depositary Interests (CDIs) for a foreign entity. When CDIs are not issued, we will use the total securities held on the Australian register.  This allows the index to be more representative of the Australian capital market and economy.”

[1] At July 31, 2021. Number of constituents in index. Source: BetaShares.

[2] At August 27, 2021. Source BetaShares. ATEC fact sheet.

[3] ASX Investment Products report. July31, 2021

[4] Ibid

[5] ASX internal data

[6] S&P. At July 31, 2021. S&P/ASX All Technology Index fact sheet.

[7] Source: Orient Capital

[8] At February 2021

[9] Ibid

[10] ibid

[11] At August 2021