Stock markets 101: Check the market’s performance by looking at indices

Julie Brownlee, Fsp Invest, 03 Jun. 2015

Tags: indices, indexes, index, what are indices, johannesburg stock exchange, stock markets,

The Johannesburg Stock Exchange lists around 400 companies.

If you wanted to check the overall performance of the market, it’s not feasible to look at the performance of each and every listed stock. So stock markets make it easy for you by providing indices.

So what exactly are indices? And what do they tell you?

Read on to find out…

The reason for indices

Indices give investors an easy way to check the performance of the stock market.

Indices (or indexes) measure the value of a whole basket of shares at a particular point in time.

You can check how an index has performed through a whole day of trading when the market closes, or you can check it through the day when the market’s still trading.

An index includes a number of individual company shares, which are weighted according to their size.

Indices are useful as they provide a system of measurement. They give you an easy way to check how the market is doing.

What about JSE indices?

In South Africa, the two most quoted indices are the JSE All Share Index and the JSE Top 40 Index.

The JSE All Shares Index is representative of the performance of all shares listed on the stock market. The JSE Top 40 Index represents the performance of the 40 largest shares on the stock market.

From these indices, at a quick glance you can see if they’re up or down for the day.

But indices on the JSE don’t stop these. There are indices representing all the major sectors on the market, for example, banks, gold producers and retailers.

Stock exchanges all around the world have different indices. For example, if you watch the evening news, you’ll see how the London Stock Exchange’s FTSE 100 Index has done for the day.

So there you have it. How to check the market’s performance by looking at indices.

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