FTSE/JSE Top 40 Index Long-Term Returns

Abstract

The FTSE/JSE Top 40 Index is the flagship index at the Johannesburg Stock Exchange (JSE). It captures more than 80% of the total market capitalisation of all the shares listed on the JSE. It is tradable and the liquid ALSI future is listed on this index. A superficial view of the long-term return of this index points to massive returns. Over a 22 year period, the index grew by 900%. Investors are celebrating. However, should investors be rejoicing? A deeper look demonstrates that returns in local currency terms are not what they seem when compared to returns in hard currencies. The index in terms of gold is a good indicator of the growth in the Gross Domestic Product of South Africa. Investors should keep this in mind when investing in South Africa.

Keywords: Capital Markets, Tradable Index, Return distributions, ALSI, JSE, Top 40 index, Gold, USD, GDP

JEL Classification: C10, G01, G10, G11, G12, G15, G24