Technology has been the fastest growing sector on the ASX by number of initial public offerings (IPOs) in the last five years.
Next week, the ASX plans to launch a new technology index, a ‘mini NASDAQ’ named the S&P/ASX All Technology Index. It is designed to be a broader, more inclusive index than the existing S&P/ASX 200 Information Technology Index, reflecting the broad range of ASX-listed companies in the technology sector. The current S&P/ASX 200 Information Technology Index only covers tech companies in the ASX 200.
The new index is expected to raise the profile of ASX tech companies currently hidden in the shadows of the mighty WAAAX shares – WiseTech Global Ltd (ASX: WTC), Afterpay Ltd (ASX: APT), Appen Ltd (ASX: APX), Altium Limited (ASX: ALU), and Xero Limited (ASX: XRO).
The new All Technology Index is part of the ASX’s efforts to attract more young tech companies. Currently, IT is the eighth largest sector on the ASX in terms of value, and the fourth largest in terms of volume. The All Technology index will make it easier to track the performance of the ASX tech sector and bring more attention to smaller-listed tech companies.
New index to boost tech IPOs
Slated to launch next week, the All Technology index may boost the number of tech IPOs this year, following a fall in the number and value of IPOs in 2019. Despite the fall in the number of IPOs last year, tech stocks represented the highest number of new listings on the ASX, according to the Australian Financial Review (AFR).
ASX General Manager of listings and issuer services Matt Cunningham told the AFR in December, “we’ve probably never had a better [tech] pipeline. Next year looks big in terms of size and also the number of tech companies, which has been coming in at around 12 to 15 each year…..we may have a few more next year.”
Increased ASX focus on tech
While the NASDAQ will continue to dominate global tech listings, the introduction of the All Technology Index is evidence of the increasing focus on the tech sector by the ASX. While US exchanges have focused heavily on the tech sector for the past 30 years or so, it has only become a focus for the ASX in the past five.
Matt Cunningham told the AFR, “tech is 20% of the S&P 500, whereas IT currently makes up just 6% of the ASX 200 index by number of companies, and only 2.5% by market cap.”
The new S&P/ASX All Technology Index should raise the visibility of tech shares on the ASX. Newer listings may benefit from being classified alongside well-established tech sector players. The index may also boost the profile of the ASX as it moves to become a leading exchange for small and mid-cap technology companies.
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Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and WiseTech Global. The Motley Fool Australia owns shares of Altium, Appen Ltd, and Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.