Portugal has emerged from the previous financial crisis with a clear strategy for its future. Things are improving significantly as a result. We will analyze the 3 most important stock market indices in Portugal.
Portugal, with its 10 million people, and a GDP per capita lower than that of Italy and Spain, is perhaps not the first country that comes to mind when we think of places to invest our money.
However, when assessing whether we want to invest in a country, one of the most important variables to consider is whether things are getting better or worse. And, thanks to the multiple tax and legal reforms implemented in Portugal over the last decade, there is no doubt that the country has become one of the most interesting places in Europe.
Indeed, the positive effects of these measures are already being felt. Portugal is able to attract both talent and capital in a way it had not done in the past, and its economy is growing as a result.
If you want to read about some of the tax reforms that Portugal implemented to become more attractive, check out the following link:
Taxes in Portugal – A complete analysis
Like in other Southern European countries, the Portuguese stock market of the 2020s is trading well below its 2008 peak. Therefore, valuations remain extremely cheap, reflecting the high risk premium that most investors still assign to the country.
If you want to invest passively in the stock market in Portugal, being familiar its most important indices is essential. This will allow you to choose an ETF that suits you.
The PSI 20, also known as the Portuguese Stock Index, is the main stock market index ins Portugal. It is calculated by Euronext, the company that owns and operates the Lisbon Stock Exchange, as well as other European exchanges, including those in Paris and Amsterdam.
The PSI 20 is composed of the 20 largest companies on the Lisbon Stock Exchange and updated every 6 months.
Within the index stocks are weighted according to their market capitalization adjusted for free float. However, we must highlight that no company can represent more than 15% of the index when the index is updated. If this were to happen, its weight would be capped at 15%, and the weights of the rest of the companies would increase to fill the gap.
Some of the most important companies in the PSI 20 are Energias de Portugal, Banco Comercial Português, and Galp Energia.
For additional details, here is the link to the official Euronext website.
PSI All Share
The PSI All Share is the other Portuguese stock market index calculated by Euronext.
It serves to illustrate the general performance of all listed companies in Portugal, without focusing exclusively on the 20 largest.
The PSI All Share is composed of all companies that meet the minimum criteria of market capitalization and liquidity to be considered to join the PSI 20, even though they may not be among the 20 largest companies.
As a result, it is a more diverse index, which includes some small-cap stocks. However, given that the Portuguese stock market is quite small, the number of additional companies in the PSI All Share relative to the PSI 20 is moderate.
Consequently, the correlation between the PSI All Share and the PSI 20 is very high.
For additional details, you can visit the Euronext website.
Finally, the US company MSCI also calculates the MSCI Portugal stock index. It is composed of all Portuguese companies that are part of the global MSCI World Index.
Because the criteria for inclusion in the MSCI World are quite high in terms of minimum market capitalization required, not many companies in Portugal meet them.
As a result, the MSCI World has very few Portuguese stocks. That makes the MSCI Portugal a highly concentrated index, composed of only 4 or 5 Portuguese companies at any given time.
This means that, while it is possible to invest in an ETF that tracks the MSCI Portugal, keep in mind that the level of diversification within the ETF is very low.
For additional information about the index, here is the link to the MSCI website.
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And if you want to learn about the stock market indices in another small European country, check out this link:
Funds and ETF