What Are Kangaroos?
Let me explain what kangaroos mean in this context. Kangaroo is a slang term for the Australian stocks that make up the country's benchmark All-Ordinaries Index. This index includes stocks from the most actively traded Australian companies.
Key Takeaways
You should know that kangaroos refer colloquially to the stocks in the Australian All-Ordinaries Index. This index serves as a benchmark for the aggregate market value of the 500 largest traded companies, based on market capitalization. Additionally, kangaroos can mean Australian dollar-denominated securities, like bonds issued in Australia by foreign companies.
Understanding Kangaroos
The kangaroos form the All-Ordinaries Index, which is the most quoted benchmark for Australia's equities market. The Australian Stock Exchange handles calculating and distributing the index and its returns.
This market-weighted index launched on December 31, 1979, and it's the oldest in Australia, covering about 500 companies. It started with a base value of 500.00, matching the aggregate market value of all member companies at the end of trading that day.
Later values are figured as the base 500 times the ratio of the current aggregate market value of index members to the initial aggregate value. The market cap of these companies dominates the total value of shares on the Australian Stock Exchange.
To get included, companies must have a market value of at least 0.2% of all domestic equities on the exchange and an average monthly turnover of at least 0.5% of their quoted shares. Since market values differ, movements in larger-cap stocks influence the index more than smaller ones. By sector, financial companies are the biggest part, followed by raw materials and industrials.
Total Market Performance
Because it's weighted by market cap and tied to aggregate value, the All-Ordinaries Index shows total market performance, not just individual stock averages. Keep in mind, it doesn't include dividends paid to shareholders, so it doesn't capture total returns from investments over time.
The Australian Stock Exchange updates the index portfolio at the end of each month to ensure companies stay eligible. Other changes, like delistings, additions, or capital reconstructions, can adjust the index during the month.
Kangaroos in the Bond Market
Kangaroos also apply to Australia's bond market. Here, a kangaroo bond is a foreign bond issued in Australia's market by a non-Australian firm, but denominated in Australian dollars. The issuer aims to diversify their debt and reach investors in Australia's debt market.
Issuers include corporations, financial institutions, and governments. Historically, U.S. and German participants have been major issuers of kangaroo bonds.
These bonds typically increase when Australian interest rates are low compared to the foreign issuer's domestic rates, reducing their overall interest costs and borrowing expenses.
Similar to kangaroo bonds, other foreign bonds include Samurai bonds, Maple bonds, Matador bonds, Yankee bonds, and Bulldog bonds.
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