Long-term initiatives to attract domestic and international listings make ASX one of world’s fastest-growing exchanges for tech sector. 

Australia’s largest technology companies have outperformed the local sharemarket this year, amid rising investor interest in the sector during the COVID-19 pandemic.

After a steep first-quarter sell-off, the S&P/ASX All Technology Index (ASX: XTX) rose 84.4 per cent between the March 23 sharemarket low and June 19, 2020, outperforming all major sectors of the Australian sharemarket by a wide margin, according to S&P Global (i).  

All 46 constituents of the index (now 50 companies) had positive returns in that period. 

Launched in February 2020, the S&P/ASX All Tech Index has returned 11.2 per cent over this calendar year (including first-quarter losses) to July 29. The S&P/ASX 200 Index was down 10.1 per cent in that period (ii).  

Although recent gains impress, the S&P/ASX All Tech Index is the culmination of a decade of ASX initiatives to foster a larger listed tech sector in Australia.

That work has two main parts. First, ASX liaising with Australian and international tech companies and institutional investors, and promoting the benefits of an ASX listing.

Second, ASX engaging with Australian and international product issuers that have issued funds over technology indices or invest actively in the sector.

Several ASX-quoted Exchange Traded Funds (ETFs), Listed Investment Companies (LICs) or unlisted managed funds offered through the mFund Settlement Service, now provide exposure to global tech companies and others benefiting from industry disruption.

Key results from ASX technology-sector initiatives include:

- Technology is the fastest-growing sector on ASX by new listings over five years (iii).

- ASX had 107 tech IPOs over FY2016-20, behind only the Japan Exchange Group and NASDAQ by volume (iv). 

- Technology was the top sector for IPOs on ASX in 2019 (v). 

- Tech companies raised $4 billion of capital on ASX in 2019 (vi). 

- Almost one in 10 ASX-listed entities is now a tech company (vii).  

- Strong growth in financial technology (fintech) listings on ASX.

Although tech-listing volumes on ASX are rising, their combined value is low compared to financials, materials and other longer-established sectors.

(i) S&P Global, “S&P/ASX All Technology Index Proved Resilient through the Pandemic: An Update Following the Q2 Rebalance,” June 25, 2020. 

(ii) S&P Global. At July 29, 2020. Total return on a year-to-date basis. www.spglobal.com

(iii) To end December 2019

(iv) Source: Dealogic. Data at June 30, 2020

(v) To end December 2019. By listings volume.

(vi) Bloomberg. At December 21, 2019.

(vii) Based on 205 tech listings in 2019, as defined by GICS. 

Fintech IPOs were especially strong in 2016 as Afterpay (ASX: APT), Pushpay Holdings (ASX: PPH) and Bravura Solutions (ASX: BVS) came to market. Five of the top 10 IPOs that year were fintech. 

The gains in technology on ASX today are the result of a decade of work, particularly the past five years as SaaS and fintech companies have listed. 

ASX Investor Update: Why are we seeing more Australian tech companies list on ASX?

MC: There are a few reasons. The Australian technology ecosystem is more developed than a decade ago. Today, there is far greater venture capital and private-equity capital available to promising tech companies and extensive support systems to help them grow.  

In essence, private-sector foundations for the Australian technology sector are much stronger. That has led to more tech companies being formed and growing to point where an ASX listing makes sense.

Generally, tech companies are more developed when they list on ASX compared to previous years – a pleasing trend. Three years ago, an average tech IPO raised $10-$15 million and had a $100-million valuation. Today, they are likelier to raise $100 million and be valued at $500-$600 million upon listing.

Another reason for tech listings is investor demand. Institutional investors globally are allocating more capital to technology, in pursuit of higher returns. Australian small-cap fund managers, in particular, are investing more in the local tech sector.

ASX Investor Update: How important are foreign tech listings on ASX?

MC: ASX has for many years promoted the benefits of an Australian listing to overseas tech companies. Our listings team has attended events in the US, Europe and Asia, and met with offshore tech companies and institutional investors. 

ASX has attracted several New Zealand tech companies through dual listings or, in the case of Xero (ASX: XRO), now a sole listing on ASX. Emerging information technology and fintech companies from the US, Israel and other countries have also listed on ASX in the past five years. 

Across all sectors, ASX had more than 270 foreign listings at June 30, 2020. 

Few exchanges outside of the NASDAQ have had as much growth in tech listings as ASX in the past five years. Our market is attractive for international tech companies that want to access a large pool of institutional capital and benefit from a well-governed, liquid Australian equities market.

Mid-sized and smaller technology companies recognise they could get overlooked by investors on an exchange as large as NASDAQ, but are an ideal size for this market. 

ASX Investor Update: What is the significance of the S&P/ASX All Technology Index?

MC: Defining technology has been a challenge when investing in the sector. Companies that provide software, hardware or tech services clearly fit the definition. But companies from other sectors are using technology to disrupt markets and digitise their business model. For example, an online platform that sells classified advertising via the internet. 

For the first time, the S&P/ASX All Technology Index includes Australia’s largest technology-related companies in one investable index. In addition to providing exposure to WAAAX companies (Wistech Global, Afterpay, Altium (ASX: ALU), Appen (ASX: APX) and Xero), the index includes Seek, Computershare (ASX: CPU), REA Group, Carsales.com, NEXTDC (ASX: NXT) and other companies using technology to disrupt markets. 

The index is independently constructed, maintained and rebalanced by S&P Global, and based on the GICS definition. The index is weighted by float-adjusted market capitalisation, subject to a single constituent weight cap of 25 per cent of the total index weight.

ASX Investor Update: How is the S&P/ASX All Technology Index rebalanced?

MC: S&P rebalances the index quarterly. The index had its first rebalance in June. Seek (following its GICS reclassification), Nitro Software (ASX: NTO), Tyro Payments (ASX: TYR), RPMGlobal Holdings (ASX: RUL) and Temple & Webster Group (ASX: TPW) were added to the index.  

Quarterly rebalancing means the most successful (by market capitalisation) tech companies on ASX are included in the index, and those no longer meeting the criteria are excluded.

ASX Investor Update: What is the significance of growth in tech-related funds on ASX? 

MC: An increase in tech funds on ASX has been an excellent development for investors who want diversified exposure to local and global tech companies via ASX.

Investors who want to allocate capital to Facebook, Amazon.com, Apple, Netflix and Alphabet (formerly known as Google) in their portfolio could buy a tech ETF on ASX, just as they would a share. 

Active managers, such as Listed Investment Companies or funds offered through the mFund Settlement Service, also provide tech exposure via ASX. These funds are meeting rising demand from Australian investors for local and global tech exposure.