South Africa is a member of the BRICS countries. It also has abundant reserves of mineral resources, especially precious metals. In this article, we analyze the three most important stock market indices in South Africa.
With a population of about 60 million people, South Africa is one of the richest countries in Africa. This is due to several factors worth examining, as they make it an interesting place to invest.
On the one hand, South Africa has a more developed institutional and legal system than most other African nations. This gives greater confidence to international investors, making it possible to attract foreign capital with the goal to develop the domestic economy.
At the same time, South Africa has abundant reserves of natural resources. Thus, South Africa is one of the leading countries in the world when it comes to the production of gold, platinum, palladium, rhodium, copper, zinc, and even uranium.
Mining represents a very important source of income and employment. And it gives the country a key role in the supply of certain raw materials.
At the political level, South Africa has been able to cultivate good relations with both Western countries and the BRICS, an organization of which it is a member. Thanks to this, its corporations are able to export their products to a greater number of countries, while making the import of certain key resources cheaper, such as oil, something crucial in the mining business.
For these reasons, South Africa can be an interesting jurisdiction for investors. Apart from the high potential returns, it can provide our portfolio with greater diversification. And, in addition to all of that, South Africa´s large commodity exports mean it can be a good bet in times of high inflation and currency devaluation.
For those who do not want to have to pick individual companies in which to invest, in the next few sections, we analyze the most important stock market indices in South Africa.
FTSE/JSE All Share
The main stock market index of the South African stock exchange is the FTSE/JSE All Share. It is an index built in collaboration between FTSE Russell, a company that creates stock market indices, and the Johannesburg Stock Exchange.
The FTSE/JSE All Share is made up of all companies listed in South Africa that meet the minimum liquidity requirements. The number of stocks in the index is not fixed, but fluctuates over time.
As a result of that, this index covers more than 99% of the total market capitalization of all listed companies in the country. And it should be noted that the weighting of them is carried out according to their market capitalization adjusted for free float.
For this reason, the FTSE/JSE All Share is the best indicator of how the South African stock market is performing. However, it is probably not the ideal index upon which one can build a passive investment vehicle. Further details on this index can be found on the Johannesburg Stock Exchange website.
FTSE/JSE Top 40
FTSE and the Johannesburg Stock Exchange calculate other indices for the South African stock market. Another major one is the FTSE/JSE Top 40, an index composed of the 40 largest South African companies.
Thus, this index is ideal for passive investment funds, such as ETFs. Stocks are weighted according to their market capitalization adjusted for free float.
It should be noted that a significant percentage of the market value of the index is in the mining sector of South Africa.
MSCI South Africa
Finally, the American company MSCI calculates a stock market index for South Africa called MSCI South Africa. It is made up of all South African stocks that are part of the global MSCI Emerging Markets index.
The number of companies within the MSCI South Africa fluctuates over time, but is between 30 and 40. This is why this index has a high correlation with the FTSE/JSE Top 40.
Some of its most important companies are Naspers, FirstRand and Gold Field. Stocks are also weighted according to their market capitalization adjusted for free float.
Additional details about the MSCI South Africa can be found on the MSCI website.
I hope you found this information about stock market indices in South Africa useful. To learn about stock market indices in other promising countries, check out this section:
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