The Johannesburg Securities Exchange, popularly known as the JSE Top 40 index, experienced a major overhaul last month as four of its former companies were axed out of the South African stock market while four others crossed the line to take the place of those four firms.
With rebalancing taking place, uncertainties and volatilities come to the surface as investors are exposed to more irregularities in the index.
The South African equity market needed to deal with the exit of four big firms: Fortress, Steinhoff, Intu Properties, and Resilient. The latter was forced to depart from the index with half of its market value slashed this year.
Earlier this year, STeinhoff, a retail giant, experienced a whopping 90% decrease in its share value. Fortress, of which 16% was owned by Resilient, also tasted its own stock price dive. This exit of both Resilient and Fortress gave a major blow to the property sector, which accounts for nearly 10% of the JSE Top 40’s market capitalization.
As of now, the logistics sector has taken over the front seat, with Imperial Holdings and Spar at the top of the food chain after the dramatic fall of the giants. Joining Spar and Imperial Holdings as the four new members of the JSE Top 40 are Truworths and Foschini Group.
The weakness in the property sector made investors flee the stock market, following a massive sell-off from hedge funds and short-term investors. Some long-term investors have started to pull out their investments as well.Naturally investors will feel more pressure on the buying side as tracker funds will have to coordinate with the new JSE Top 40. In this case, share prices in the index must reach a point of stability before investors restore their confidence and willingness to take risks.