Delving into international stock markets: The ins and outs of utilities

Julie Brownlee, Fsp Invest, 18 May. 2015

Tags: utilities, what are utilities, defensive stocks, stock markets, international stock markets, investing in utilities,

On many international stock markets, you’ll find a sector called utilities. But you won’t find a utilities sector on the Johannesburg Stock Exchange (JSE).

So what are utilities? And why isn’t there a utilities sector on the JSE?

Read on to find out…

What are utilities?

Utilities are companies which provide electricity, water, gas and other similar products and services to consumers and businesses.

A typical utilities sector on the stock market includes companies that produce these services and companies that deliver these services. For example, companies that operate power plants and companies that operate electricity transmission networks.

But that doesn’t make all energy companies utilities. For instance, a company which extracts gas from the ground isn’t a utility. It’s an upstream energy company.

Why invest in utilities?

Utilities tend to be defensive stocks. In other words, the economy doesn’t influence their performance so their profits are generally stable. This is because consumers and businesses need the products and services of utilities.

But this isn’t always the case. Utility companies need to maintain and invest in their infrastructure. For example, gas pipeline networks and water treatment plants. And this can be very expensive.

This required capital expenditure means that some utilities have high levels of debt. And this makes them sensitive to interest rate hikes.

Why is there no utilities sector on the JSE?

In South Africa, utilities are state-owned. For example, power-utility Eskom. This means that the government owns the companies.

Due to this, it means the companies aren’t listed on the stock market and you can’t buy shares in them.

If you wanted to include utilities in your portfolio, you’d have to look to international stock markets which have a utilities sector.

So there you have it. The ins and outs of utilities.

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