JSE All Share Index (Alsi )
The Financial Times Stock Exchange (FTSE)/ Johannesburg Stock Exchange (JSE) affectionately known as the FTSE/JSE Top40 Index, is a capitalisation weighted index. Companies included in this index are the 40 largest companies by market capitalisation included in the FTSE/JSE All Shares Index. The index was developed with a base value of 10399.53 as of June 21, 2002.
These indices are highlighted in the FTSE/ JSE Africa Index Series. The Series is designed to represent the performance of South African companies, providing investors with a comprehensive and complementary set of indices, which measure the performance of the major capital and industry segments of the South African market.
The FTSE/JSE All-Share Index represents 99% of the full market capital value (before the application of any investable weighting) of all ordinary securities listed on the main board of the JSE, subject to minimum free float and liquidity criteria.
The FTSE Group is a British provider of stock market indices and associated data services, wholly owned by the London Stock Exchange (LSE) and operating out of premises in Canary Wharf. It operates the well known UK FTSE 100 Index as well as a number of other indices.
The Group operates 250,000 indices calculated across 80 countries and in 2015 was the number three provider of indices worldwide by revenue. FTSE Group earns around 60 per cent of revenue from annual subscription fees and 40 per cent from licensing for index-based products.
Clients include both active and passive fund managers, consultants, asset owners, sell-side firms and financial data vendors. FTSE’s products are used by market participants worldwide for investment analysis, performance measurement, and asset allocation and hedging. Pension funds, asset managers, ETF providers and investment banks work with FTSE to benchmark their investment performance and use FTSE’s indices to create ETFs, index tracking funds, structured products and index derivatives. FTSE also provides many exchanges around the world with their domestic indices.
The Johannesburg Stock Exchange (JSE) is Africa’s largest stock exchange and one of the most dynamic investment jewels in the world. Situated in Africa’s richest square mile, Sandton, the JSE has positively grown and obtained an excellent world-wide reputation.
This is testified by the fact that in 2003 the JSE had an estimated 472 listed companies and a market capitalisation of over R 11 trillion, as well as an average monthly traded value of R96.8 billion.
The JSE describes itself as the “engine room” of the South African economy, providing an orderly market for dealing in securities. Its main function is to facilitate the raising of primary capital by re-channelling cash resources into productive economic activity, and building the economy while enhancing job opportunities and wealth creation. The JSE also provides an effective price determination facility and price risk management mechanism.
The JSE is privately owned and funded, and governed by a Board of Directors. Its activities are licensed and regulated by two Acts of Parliament, namely the Stock Exchanges Control Act, 1 of 1985 (“SECA”), which governs the equities markets, and the Financial Markets Control Act, 55 of 1989 (“FMCA”), which governs the derivatives markets.
In keeping with international practice, the JSE also acts as regulator of its members and ensures that markets operate in a transparent manner, ensuring investor protection. Similarly, issuers of securities must comply with the JSE Listings Requirements, which aim to ensure sufficient disclosure of all information relevant to investors.
The JSE provides a market where securities can be traded freely under a regulated procedure. It not only channels funds into the economy, but also provides investors with returns on investments in the form of dividends.
The JSE Top 40 Index refers to the top 40 biggest companies trading on the exchange. These are professionally ranked by market capitalisation (market cap). The market cap of a company is the number of available shares multiplied by the current share price.
The Top 40 index is a fair reflection of what happens to the South African market as a whole, because even though it contains only 40 out of the roughly 400 shares listed on the JSE, it represents over 80% of the total market cap of all JSE listed companies.
There are five indices that make up the Headline Category: the All Share Index (J203), the Top 40 Index (J200), the Mid Cap Index (J201), the Small Cap Index (J202) and the Fledgling Index (J204). These indices comprise eligible instruments, listed on the JSE Main Board, and are categorised according to company size (market capitalisation).
The All Share Index represents 99% of the full market cap of all eligible equities listed on the Main Board of the JSE. The All Share Index can further be split by size into the Top 40, Mid Cap & Small Cap Indices.
The All Share index is not the entire market. It consists of the largest 164 listed companies and is almost 100% of the market cap and liquidity of the market.
This is how some of the other prominent indices are calculated:
- Top40 = 40 largest companies
- Indi25 = 25 largest industrial companies
- Fini15 = 15 largest financial companies
- Resi10 = 10 largest resource companies
- Mid Cap = 60 largest companies after the Top40
The index is designed for use in the creation of index tracking funds, derivatives and as a performance benchmark. Stocks are selected and weighted to ensure that the index is investable.
For liquidity, the stocks are screened to ensure that the index is tradable. This enables transparency to prevail. The index uses a transparent, rules-based construction process.
Index Rules are freely available on the FTSE website.
The index is calculated based on price and total return methodologies, both real time and end-of-day. Index constituents are categorised in accordance with the Industry Classification Benchmark (ICB), the global standard for industry sector analysis.
The JSE All Share Index could reach 55,000 points by 2017, but investors should not expect the same stellar returns that have almost become the norm in the local equity market over the last decade.
In December 2015, markets reacted extremely negatively to South Africa’s former Finance Minister Nhlanhla Nene’s replacement by David Van Rooyen. The South African Rand dropped as much as 5.4 percent against the dollar in a single day. Within a few days, Nene’s predecessor Pravin Gordhan was re-appointed as Finance Minister to replace Van Rooyen.
The FTSE/JSE financial 15 index fell 13.36%‚ the FTSE/JSE banks index dropped 18.54% and the FTSE/JSE all-share index shed 2.94%.The market capitalisation of the whole JSE went down by 1.49% to R11.18 trillion‚ a loss of R169.6-billion.The benchmark government bond‚ the R186‚ which was trading on a yield of 8.66% at the beginning of the week‚ ended the week at 10.40%.
“Market losses put strain on credit extension and interest rates‚ and raise borrowing costs for companies and individuals‚” Nicky Newton-King the JSE CEO, was quoted as saying after the storm.
Sanlam Private Investments (SPI) expects that the All Share Index could deliver an average total return of 9.4% per annum over the next three years – 6.6% capital growth and a 2.8% dividend yield.
Speaking at SPI’s quarterly briefing, Alwyn van der Merwe, director of investments, said that while the projected return over the next three years is significantly lower than those experienced over the past ten years, it is still not a bad return in an inflationary environment of 5.5% or 6%. He believes it will be very tough for any other asset class to outperform equities.
SPI’s forecast is based on the Bloomberg consensus earnings forecast for Alsi companies over the next three years and an expectation that the market rating would adjust from the current price-earnings multiple of just over 18 to slightly above 14, based on historic trends.
South Africa’s FTSE/JSE Index decreased 648 points or 1.24% to 51584 on Friday April 1 from 52232 in the previous trading session. South Africa FTSE/JSE Index lost 645.3 points or 1.24 percent during the last 12 months from 52,229.32 points in April of 2015. Historically, the South Africa Stock Market reached an all time high of 55188.34 in April of 2015 and a record low of 26738.91 in August of 2010.
The prospects for long bonds and international bonds are also unfavourable and while the local listed property sector has had a stellar performance over the past few years, its prospects are expected to be more muted going forward. There is a risk that bond yields could spike and that property yields would follow suit.
However, it is the opportune time for investors to revisit the risk in their portfolios and to make adjustments if they are exposed to too much risk. Sanlam’s van der Merwe believes there will be a lot of critical comments by policy-makers and politicians next year and there is a likelihood that shares that are trading at expensive levels will respond. Volatility will however create opportunity to reduce exposure to expensive assets and to buy cheaper ones.
Van der Merwe believes the market rating is more elevated than during the past two years which suggest that the prospects are less rosy than they were at the end of 2010. In recent times the earnings reported by many local companies – even industrials – have generally been good, although it may have been slightly lower than anticipated. However, the macro environment is now tougher than most people expected.
He also stressed that South African-only companies and consumers shares therefore face a tougher environment than they did over the past few years. However, if the world muddles through with globally economic growth of around 2.5% and some economies perform slightly better, some of the overseas- earning locally listed companies would generate decent earnings in a weaker rand environment.
Investing on the JSE can yield good returns for most investors. Looking at the JSE All-Share index (Alsi) over the last fifty (50) years gives us the closing price for the index for 12,588 days. For each of these days Powerstocks started an investment in the ALSH and then looked at how each investment would have grown after 1,2,3,6 and 12 months, as well as between 1-10 years (the holding periods).
For each holding period they then tallied up the percentage of investments that managed to beat various growth rates ranging from 0% (ie what % of investments managed to not make a loss) through to 30%.
Since they were using such a large and statistically significant sample set (12,588 data points), this effectively gives them an indication of the probability of an investment in the ALSH beating a particular growth rate. They then plotted Probability Curves on charts.ALSH beating a particular growth rate. They then plotted Probability Curves on charts.
The charts show what percentage of various short-term holding strategies managed to produce in excess of the growth. For example, 60.7% of the 12,588 1-month portfolios managed to show more than or equal to 0% growth. This means, that if you invested in the JSE on any day in the last 50 years you would have had a 60.7% chance of not losing money after a month. Similarly 9,195 one-year investments out of the total of 12,588 showed >= 0% growth, which means 73% probability of not losing money.
Holding shares in the JSE All Share index for 6 years delivers the best risk/reward ratio. The six year strategies offer the best ratio of returns to deviation of returns, the lowest risk of losing your money and the highest probability of meeting your growth objectives.
When you weigh up JSE returns versus leaving money in the bank, the risks of investing on the JSE are certainly worth it.