The construction of All SADC stock market indices

Tyandela, Luvo (2001-03)

Thesis (MBA)--Stellenbosch University, 2001.

Thesis

This thesis presents a study on : (1) The construction of the SADC All Stock Market Indices, namely the SADIX (SADC Index Including South Africa) and the SADEX (SADC Index Excluding South Africa), which will serve as performance benchmarks for the region, and as indices for tracking the performance of the region excluding the JSE (2) Comparative analysis of the SADC bourses returns (3) Correlation Analysis between the SADC countries The SADC All Stock Market Indices, SADIX & SAD EX are market value, capitalization-weighted indices in which all components are weighted according to the total market value of their outstanding shares. They comprise all equity securities listed on the SADC region excluding Tanzania. Both series are calculated in local currencies and converted to US dollar terms, using end-af-week data with a base value of 1,000 as at 3rd September 1999. The dissertation presents a discussion on the regionalization of the African stock exchanges and how they this will impact the low liquidity levels which is endemic to most of the African Stock Exchanges. The results obtained indicate a significantly high correlation between the individual country indices with the SADe All Stock market Indices. Furthermore, observations are that the SADe stock exchanges show similar reactions to news flow and economic shocks. However, there are negative correlations, which will offer investors a fundamental basis for a diversification strategy in the region. Finally, the thesis concludes that despite the perception that African stock markets are in chaos, there are lucrative SADe markets, smaller in terms of size and market capitalization that will provide good returns.

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