Kangaroos in Finance: Definition, Market Representation, and Bond Market Implications

In finance, “kangaroos” is a colloquial term used to describe Australian stocks included in the All-Ordinaries Index. This index serves as a benchmark for the Australian equities market and consists of approximately 500 of the largest publicly traded companies in Australia. Managed by the Australian Stock Exchange (ASX), the All-Ordinaries Index reflects the collective performance of these companies and is widely used by investors, analysts, and fund managers to assess the overall health of the Australian stock market.

Established on December 31, 1979, the All-Ordinaries Index has a base value of 500.00, representing the aggregate market value of its constituent companies at the close of trading on the final day of 1979. Subsequent index values are determined by multiplying the base number 500 by the proportion of the current aggregate market value of index members to the aggregate market value at the index’s inception.

For a company to be included in the All-Ordinaries Index, it must meet specific criteria set by the ASX. These criteria include having a market value of at least 0.2% of all domestically quoted equities and an average monthly turnover of at least 0.5% of quoted shares. As a result, larger-cap companies have a more significant impact on the index’s movements compared to smaller companies.

The All-Ordinaries Index is a market-weighted index, meaning that it reflects overall market performance rather than the performance of individual stocks. It does not account for dividends paid to shareholders, focusing solely on capital gains or losses. Consequently, the index provides a comprehensive view of the Australian stock market’s performance over time.

The ASX reviews the index portfolio monthly to ensure that included companies continue to meet the eligibility criteria. Changes in the index can occur due to delistings, additions, or capital reconstructions among member companies, reflecting the dynamic nature of the Australian equities market.

Beyond equities, kangaroos extend to Australia’s bond market. In this context, a kangaroo bond refers to a foreign bond issued in Australia’s market by a non-Australian entity but denominated in Australian dollars. The issuance of kangaroo bonds enables foreign firms to diversify their debt exposure and tap into Australia’s investor base.

Various entities, including corporations, financial institutions, and governments, issue kangaroo bonds. Historically, issuers from the United States and Germany have been significant participants in the kangaroo bond market.

Kangaroo bonds become particularly attractive for foreign issuers when interest rates in Australia are lower compared to their domestic rates, leading to potential cost savings on borrowing expenses. Similar instruments in other markets include Samurai bonds, Maple bonds, Matador bonds, Yankee bonds, and Bulldog bonds.

To be included in the All-Ordinaries Index, companies must have a market value of at least 0.2% of all domestically quoted equities and an average monthly turnover of at least 0.5% of quoted shares.

The ASX reviews the index portfolio monthly to ensure that included companies continue to meet the eligibility criteria.

Kangaroo bonds are foreign bonds issued in Australia’s market by non-Australian entities but denominated in Australian dollars.

Kangaroo bonds are issued by various entities, including corporations, financial institutions, and governments.