The ASX is planning to launch a new technology index next year, giving Australia what is being dubbed as a smaller version of the US’ NASDAQ index.
This index, to be named the S&P/ASX All Technology Index, is anticipated to launch on 21 February to give greater clarity to investors tracking ASX-listed tech stocks.
The NASDAQ index currently tracks the performance of the world’s top tech stocks, typically with $1 billion valuations or higher and boasting tech giants such as Apple, Microsoft, Amazon.com, Facebook and Netflix.
In contrast, ASX executive general manager of issuer services and investment products Max Cunningham told Small Caps the S&P/ASX All Tech is expected to appeal to tech companies of “mid-cap size and upwards”.
And unlike the S&P/ASX 200 Information Technology Index, which lists the top 200 IT companies, All Tech will encompass all technology classifications but the number of names on the list will be open-ended and comes down to “investability”.
Mr Cunningham said of the 200 tech-focused companies presently trading on the ASX, only around 45 of those would be on the index if it were live today.
He described “investability” as meaning a company with a sizeable market cap, a free float (at least 30-40% of its shares being traded publicly) and having a minimum dollar value average trading turnover – a figure which he did not disclose.
Mr Cunningham said the ASX has been focused “for the best part of five years” on trying to create a “listed tech ecosystem”. The exchange first began considering a tech index about two years ago but felt that it didn’t quite have the critical mass required.
“Now there’s a critical mass of tech companies that you can point to or recognise as tech and it’s time to give them a sector of their own … and give investors something to benchmark against,” he said.
Investors and market watchers will be able to track how the segment is performing as a whole and against other local indices such as mining or financials, or against some of the peer technology indices internationally.
“It also hopefully gives tech companies … greater profile and greater access to investors, and banks and brokers follow [indices] too,” Mr Cunningham added.
Tech stocks listing in Australia
According to ASX data provided to Small Caps, technology is the fastest growing sector by number of IPOs in the past five financial years.
In the 2019 financial year, the segment ranked second by the number of IPOs on the ASX, with $8 billion raised via IPO.
As a whole, IPOs were lower this year than in 2018 on both the ASX and global exchanges. However, 90 new tech stocks are expected to have listed by the end of this year.
The next largest IPO was Irish software company Fineos Corporation Holdings (ASX: FCL), which raised $211 million and began trading in August.
Other recently listed stocks included fintech company Prospa Group (ASX: PGL), payroll software company ReadyTech Holdings (ASX: RDY), Afterpay rivals Splitit (ASX: SPT) and Sezzle (ASX: SZL), and US smartphone app Life360 Inc (ASX: 360).
Most recently, Adobe rival Nitro Software (ASX: NTO) closed its $110 million IPO and started trading last week, along with buy now pay later business MoneyMe (ASX: MME), which raised $45 million through its IPO.
Finally, US human resources software company Limeade is expected to commence trading under the ticker code LME this Friday.
Mr Cunningham said the index is expected to raise the profile of tech companies presently hidden in the shadows of the $30 billion ‘WAAAX’ stocks, comprised of tech heavyweights WiseTech Global (ASX: WTC), Afterpay (ASX: APT), Altium (ASX: ALU), Appen (ASX: APX) and Xero (ASX: XRO).
“Many of the companies that are big tech now started off in the [small caps] universe – certainly the WAAAX stocks Afterpay, Altium, Appen and Xero all started off as $50-$150 million companies and have grown along with WiseTech into the big five tech names,” he said.
“Our goal is to develop a good, high-quality, growing tech sector, welcoming mid-cap and upwards [to the tech index], attracting institutional money in the small cap to mid cap space, and [companies with] the potential to not just to be in this index, but to be in the ASX 300 or ASX 200.”
“Xero and Altium are in the [ASX] 100; these are great pathways for companies to follow in. We’re not driven by numbers of tech companies, we’re driven by the quality of those tech companies,” Mr Cunningham said.