Indices

What is an Index?

An index is a statistical measure of the changes in a portfolio of stocks representing a portion of the overall market. This number summarises the fluctuation of share prices on a given day. An index’s primary purpose is to reflect the aggregate movement of the market it represents. Hence, a single index value would be meaningless if not compared to a previous/ historical value.

How are indices used?

Indices can be used as a benchmark in the way that the All Share index (Alsi) is used in our market. In this way it acts as a proxy for the performance of all companies listed on the JSE. Indices can also be used to measure performance, for instance, one can use the bank’s index to measure the performance of the banking sector. Because indices are calculated from different base values, the percentage change is more important than the actual numeric value. Technically, one can’t actually invest in an index. But one can invest in products like Exchange Traded Funds (ETFs) or derivatives which are based on these indices.