JSE Quarterly Rebalance Update

Published on: Sep 8, 2022 12:45:41 PM
Every three months the Johannesburg Stock Exchange rebalances the FTSE/JSE indices. This takes place in March, June, September and December. Changes constituted in the rebalancing are implemented on the third Friday of the respective month.

For this quarter, no changes were implemented on the Top40, SWIX40, All Share, SWIX All Share, Indi25, Fini15 and Resi10 indices. To explain further, here’s what the team from 1nvest had to say:

“In the third quarter of 2021, if you recall, the Johannesburg Stock Exchange (JSE) undertook a consultation process regarding possible changes to the capping methodology of both the FTSE/JSE Capped SWIX 40 (J430) and the FTSE/JSE Capped SWIX All Share (J433). The main discussions and general market consultations back then were centred around whether or not to implement capping at a ‘combined entity’ level, i.e. considering majority holdings or revenue earnings that are derived by holding another listed company. These changes to capping indices were expected to result in Naspers (NPN) and Prosus (PRX) being capped jointly.

“The latest FTSE/JSE Africa Index Series rebalance became effective on 20 June 2022, where index trackers rebalanced their portfolios during the closing auction of 17 June 2022. Index rebalancing turnovers were lower than Q1 2022’s turnovers across all FTSE/JSE indices. Due to muted weight changes across all indices, the FTSE/JSE All Share Index saw a 1.2% two-way turnover compared to 21.7% two-way turnover we saw last quarter. The two-way turnover for the FTSE/JSE Top40 Index was 1% compared to the 25.1% we saw last quarter. Naspers and Prosus were still capped at 6% individually. The FTSE/JSE Capped SWIX All Share had a two-way turnover of approximately 2.0% compared to 4.5% we saw last quarter.”

How does this affect you as a shareholder?

Since collective investments such as ETFs track the performance of specific indices, when changes in these indices occur, ETFs follow the change in order to stay aligned with the underlying asset.

Considering the above and the current inflationary pressures from the microenvironment conditions, bonds are used as an indicator to guide where the economy is moving and how, as an EasyVSTR, you may allocate funds in your investment portfolio.

A correlation analysis between equity and bond market

The relationship between stocks and bonds has historically been an indicator of macroeconomic conditions and driver of asset allocation for investors. Understanding the correlations that exist between these asset classes and how they perform during different macroeconomic regimes continues to be one of the main considerations in portfolio diversification and driving SAA. Locally, correlations between the South African All Bond Index and the JSE All Share Index have typically fluctuated around zero since 2007, with certain periods of slightly negative and low positive correlation being observed. Interestingly, since late 2019 and the advent of Covid-19, the correlation has turned positive and has been steadily increasing. Globally, when considering the relationship between the FTSE Group-of-7 (G7) Government Bond Index and the MSCI World Index, the picture is slightly different. The historical correlations dropped to zero post the global financial crisis of 2008 and have steadily increased to a peak of approximately 0.8 in 2019. However, this relationship has been breaking down over the last three years and trending towards zero, with a slight increase in correlation noted over the last few months in line with the local picture.

For investors, it is important to remember that in periods of increased headline correlation between asset classes, it remains prudent to stay the course and ensure that your clients’ SAA is appropriate for their investment goals.

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Source: Bloomberg and STANLIB

 

To compare and search for your desirable ETFs and unit trusts, you can use the EasyWealth and EasyETF portal below, where you can identify more investment options and how to protect and grow your wealth.

Compare Unit trusts here Compare ETFs here

 

Any opinions, news, research, reports, analyses, prices, or other information contained within this research is provided by an employee of EasyEquities an authorised FSP (FSP no 22588) as general market commentary and does not constitute investment advice for the purposes of the Financial Advisory and Intermediary Services Act, 2002. First World Trader (Pty) Ltd t/a EasyEquities (“EasyEquities”) does not warrant the correctness, accuracy, timeliness, reliability or completeness of any information (i) contained within this research and (ii) received from third party data providers. You must rely solely upon your own judgment in all aspects of your investment and/or trading decisions and all investments and/or trades are made at your own risk. EasyEquities (including any of their employees) will not accept any liability for any direct or indirect loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on the market commentary. The content contained within is subject to change at any time without notice.

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