The construction of African regional and all-Africa stock market indices

Fish, Therese (2001-12)

Thesis (MBA) --Stellenbosch University, 2001.

Thesis

ENGLISH ABSTRACT: Africa's stock markets are considered by many emerging market specialists to have great potential for investors. Developing models which track share/financial indices provide a means of disseminating information about market performance. With the active move towards regional stock markets, regional indices will provide an important tool for performance of the region. Stock market indices provide information to investors and portfolio managers about the performance of various markets or groups of stocks. Investors can use the movement of indices as a way of assessing market trends and opportunities for investment. As economic integration increases in Africa, it will become increasingly important to have markers of regional market performance. This study project collected weekly market capitalisation data from the markets in the various regions, which were utilised to construct regional all-share indices for the year 2000. Regional indices for three of the four regions within Africa were constructed. The three indices are the EASDEX (for East Africa), the NADEX (for North Africa) and the WADEX (for West Africa). The weekly market capitalisation data were further utilised to construct an All-Africa index. The Johannesburg Stock Exchange (JSE) dominates the Southern African Development Community (SADC) regional market's total market capitalisation. Similarly the SAOG region dominates the total market capitalisation for Africa. The JSE contributes 59% to the total market capitalisation of Africa (January 2000). The All-Africa index moves together with the SADIX (SAOG regional index) confirming the high weighting of South Africa in the total market capitalisation of Africa. Encouraging economic growth throughout Africa and not just in Southern Africa will assist the continent as a whole to attract market capital. In the long term this should increase market growth in the other regions of Africa and enable investors to diversify into Africa. There are certainly opportunities for investors in Africa. The low correlation between Egypt and the other two North African markets allows for diversification within the North African Region. Nigeria has been the market that had the highest returns during 2000, one that outperformed many international markets. SADIX has low or negative correlation coefficients with the rest of the African individual as well as the regional market indices. Historically emerging markets are volatile and risky. The case for diversification into emerging markets originates from the high economic growth potential of emerging markets, together with low correlation with other developed markets. The development of All-Share indices, which track market performance on the African continent, will assist both potential institutional as well as individual investors.

AFRIKAANSE OPSOMMING: Afrika se effektemarkte word deur baie opkomende markspesialiste beskou as potensieel gunstig vir beleggers. Deur modelle wat aandele/finansiële indekse volg te ontwikkel, word 'n middel voorsien om informasie oor markprestasie te ontleed. Met die aktiewe beweging na streeksaandelemarkte, sal streeksindekse 'n belangrike maatstaf vir die prestasie van 'n area voorsien. Aandelemarkindekse voorsien informasie aan beleggers en portefeulje bestuurders oor die prestasie van verskeie markte of aandelegroepe. Beleggers kan die beweging van die indekse gebruik om marktendense te ontleed asook om geleenthede vir investering te identifiseer. Dit sal belangriker raak om maatstawwe van streeksmarkprestasie te hê soos ekonomiese integrasie in Afrika toeneem. Hierdie studieprojek het weeklikse markkapitalisasie data van die markte in die verskeie areas versamel, wat gebruik is om 'n streeksindeks van alle aandele vir die jaar 2000 saam te stel. Streeksindekse vir drie van die vier streke binne Afrika is saamgestel. Die drie indekse is die EASDEX (Oos Afrika), die NADEX (Noord Afrika) en die WADEX (Wes Afrika). Die weeklikse markkapitalisasie data is verder aangewend om 'n Alle- Afrika indeks saam te stel. Die Johannesburgse Effektebeurs (JEB) domineer die totale markkapitalisasie van die Suidelike Afrika Ontwikkelingsgemeenskap (SAOG) se streeksmark. Insgelyk domineer die SAOG streek die totale markkapitalisasie vir Afrika. Die JES dra 59% by tot die totale markkapitalisasie van Afrika (Januarie 2000). Die Alle-Afrika indeks beweeg saam met die SADIX (SAOG streeksindeks) wat die gewigtigheid van Suid Afrika in die totale markkapitalisasie van Afrika bevestig. Deur ekonomiese groei regdeur Afrika en nie bloot in Suider Afrika nie, aan te spoor, sal dit die vasteland as 'n geheel steun om markkapitaal aan te trek. Op die lange duur behoort dit groei te bevorder in die ander streke van Afrika en beleggers in staat te stel om binne Afrika te diversifiseer. Daar is ongetwyfeld geleenthede vir beleggers in Afrika. Die lae onderlinge afhanklikheid tussen Egipte en die ander twee Noord Afrika markte laat diversifikasie binne die Noord Afrika streek toe. Nigerië is die mark met die hoogste opbrengste tydens 2000 en het selfs baie internasionale markte oortref. SADIX het lae of negatiewe korrelasiekoeffisiënte met die res van die Afrika individuele-, sowel as die streeksmarkindekse. Histories is opkomende markte onstabiel en riskant. Partydigheid vir diversifikasie in opkomende markte ontstaan vanuit die hoë ekonomiese groeipotensiaal van hierdie markte tesame met lae onderlinge afhanklikheid met ander ontwikkelde lande. Deur indekse van alle aandele wat markprestasie op die Afrika-vasteland volg saam te stel, sal beide potensiële institusionele, sowel as individuele beleggers se besluite/ontledings ondersteun word.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/52498
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