The resource sector on the Johannesburg Stock Exchange (JSE) can be divided into two categories. The Oil & Gas index and then the Basic Materials index. The Oil & Gas index is pretty self-explanatory, but the Basic Materials is a very vague term. The Basic Materials group is made up of Metals & Mining, as well as the forestry industry. The Resource 20 index is focussed primarily on the Basic Materials group.
A lot of resource companies rely heavily on shareholders to raise capital, especially startup companies. But the ones that are settled and have a whole lot of mines that fall under them do not use investors’ money to start high-risk ventures. Yes, they still use shareholder money to fund exploration expeditions, but in most cases, the investor will get back his buck. The Resource 20 index lists the top producing mining and forestry companies on the JSE. These companies have stood the test of time and have grown in the face of adversity and under strenuous economic conditions. There are definitely profitable investment options in this index.
Companies that fall under the Resource 20 index on the JSE are mostly mining giants like BHP Billiton and Anglo American. These companies have been around for quite some time and they have built up massive mining empires. In addition, even though there may be unrest and a dip in the South African mining industry, these companies have been in the game for so long that they will simply weather the storm and once mining becomes feasible again, as it always does, they will rise to the occasion.
Then there are forestry and paper producing companies such as Mondi and Sappi on the Resource 20 index. These paper giants need no introduction in South Africa. If you go into any supermarket or stationary shop, you will find two brands of printing paper on the shelf, Mondi Rotatrim or Sappi. Most of the counties’ forestry industry belongs to either one of these companies.
Ever since the Marikana incident at one of the Lonmin platinum mines close to Rustenburg, the South African mining industry has seen a steady decline in production and value. Even though this is the case, the Resource 20 index shows slow growth over the last 12 months. Companies in this index that did exceptionally well are the paper producers and of course Sasol, a mining company that falls under both the Oil & Gas index, as well as the Basic Materials index.
When looking to invest your money on the JSE, we highly recommend that you talk to one of our investment brokers. Apart from that, you should also do your own research into the companies that you intend to invest in. Most brokers will tell you that it is wise to invest over a wide range of companies, and not to put all of your proverbial eggs in one basket. So before you start investing, take the time to read up about the three sectors under which trade takes place on the JSE.
These are the three sectors:
- SA Financials: All of the JSE listed companies belonging to the ICB Industry Financials
- SA Resources: All of the JSE listed companies belonging to the ICB Industries Oil & Gas and Basic Materials
- SA Industrial: All of the JSE Listed companies that do not fall into the first two categories.
When you are buying shares, especially if you are just starting out, it can be safer to buy from an industry that you are familiar with. This will help you when you want to track the growth of the company you have invested in and it will help with spotting the trends which might appear and benefit you, further down the way.
The Resource 20 index lists the top resource companies on the JSE.
Why should you invest in shares?
Over the years many South Africans have made money from the Johannesburg Stock Exchange. Founded in 1887, the JSE has been South Africa’s only stock exchange and as of 2003, it had over 700 companies listed. Companies can list themselves on the JSE, provided they meet a few requirements. Companies entering in the small cap are normally those in need of a capital boost so that they can expand their company and grow. Capital accumulation is one of the biggest reasons why a company will list on the stock exchange while bigger companies have other reasons. However, even bigger companies listed on the stock exchange need to raise money.
So why invest in Resource 20?
There are two reasons why you should invest in the companies listed on the Resource 20 index. When you purchase shares you are helping private companies to grow. When these companies grow, more jobs are created and the economy keeps on moving, which we definitely want in South Africa. But investing in shares is not just to help companies grow and produce more gold or platinum. Depending on the company you invest in, you could be earning back more than your initial investment in dividends and payouts. You can also sell your shares at a later stage when they are worth more money.
The index in which you invest your money is likely to give you an indication of whether or not you are going to receive dividends. Companies listed in the resource index often plough their profits straight back into the company, sometimes with no dividends paid to investors. However, some companies on Resource 20 do pay out dividends.
The benefits of investing in the Resource 20 index
Now that you have a better idea of why investing your money is a good idea, here are some reasons why you should choose the Resource 20 index.
These are some of the categories within the resource sector:
- Oil & Gas
- Industrial Metals & Mining
- Alternative Energy
South Africa accounts for roughly 15% of global gold production and we are the worlds largest platinum producer. These are metals that do not easily lose value. Platinum is used widely as a catalytic converter in the industrial and automotive industries. Whereas gold is used in electronics (a massively growing field) and jewellery. If you invest in gold or platinum, you are almost sure to create some wealth.
By knowing which categories you can invest in, you will be in a better position to be able to make better choices with your investments. For instance, if you work at a bank you should already know something about the finance world. It would be easier for you to start off by investing in a financial services provider.
Before you start investing, read these tips
Entering into the investment world is an exciting thing to do and more so, it can be a journey that is very profitable and rewarding. Some invest in helping companies grow and they make some money in doing so, while others invest because they love the excitement that can only be provided by the stock market. Here are some tips to think about before you invest.
- Don’t invest without thought, know exactly why you are buying shares. With a clear goal in mind, you will be able to make more informed choices which in turn will help you to clearly define what your risks will be.
- Know when it is the right time to sell. Holding onto shares when you should actually be selling them could damage your goals and cost you money.
- Have your long term goals and your short-term goals. With your long-term goals, you will have more time to plan, and you will see your investment grow knowing that you will have the money down the line. With this kind of investment, volatile shares are not an option. With your short-term goals, you can buy and sell in a shorter period and make yo0
- ur money back when you need it.
Remember to always be logical with your investments. Making mistakes is part of investing and although it can play on your emotions when you make a bad decision, you shouldn’t give up.
Ready to start investing? We are ready to help you make great choices! Speak to one of our stock brokers today to set up your portfolio. Our team of professionals can also help you if you are already an investor and you are looking for a new investment angle.