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Is the JSE All Share Index still a viable investment for South African traders?

16-07-2019 | ( words)
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The JSE All share index being the leading index in the JSE (Johannesburg Stock Exchange), is an accurate benchmark of the African economy and provides an overview of the performance of the main capital and industry sectors of the resource heavy South African market. However, with the countless financial vehicles ripe for investment, South African traders should look to diversify their portfolio in international products such as forex, CFDs and crypto in order to gain exposure to less risky high-growth markets.

 

Why not the JSE ALL-Share Index?

Even though the JSE All Share is the main index that reflects the overall performance of the South African equity market, the problem is that it’s too concentrated. Unlike other indices where the companies tracked are balanced in their weight, the JSE All-Share is mostly one-sided with 10 companies making up more than 50% of the total index’s market cap. Therefore, while you may think that you are investing in a basket of more than 160 companies that make up the index - your money for the most part goes to the top 10 companies dominating the index.

JSE Index Shares CM Trading

The alternatives

Thankfully, index tracking investments aren’t the only financial vehicles available to South African investors and it could be argued that opportunities found in forex, commodities and cryptos are easier to access with lower entry limits. In fact, a forex brokerage account can even give you access to several international indices including the JSE All Share and JSE/FTSE Top 40.

Speculative instruments like forex and cryptos demand that you be more active in your investments which makes them less suitable for beginner investors – they provide more growth opportunities with a shorter time horizon than your traditional index tracking investment.

 

Forex

The forex market is, bar none, the largest financial market in the world. More than 5 trillion dollars are traded daily through a network with millions of participators including central banks, financial institutions and retail traders.

This enormous trading volume affords several advantages for traders because no one entity commands a volume high enough to corner or manipulate the market and the large number of participators guarantees competitive pricing as well as ultra-fast execution of your orders. The unpredictable volatility can be a good thing and a bad thing depending on how you look at things, but there are some ways to mitigate unanticipated movements for the risk-averse investors.

 

Cryptocurrencies

With the recent turn of events and Bitcoin’s return to the headlines, we would be remiss if we didn’t mention the rise of cryptos in South Africa. In truth, the reports show that South Africa is one of the top countries that is most interested in cryptos placing it 2nd in the list after Nigeria. Coupled with the positive regulatory environment, the several exchanges and Bitcoin ATM’s popping up across the country – investment in cryptos is becoming more mainstream every day.

However, you can also bypass the need to buy cryptos and store them in digital wallets by simply utilizing the aforementioned forex account. Although late to the party, more forex brokers are now including the most popular cryptos in their offering and traders can speculate on the rates of Bitcoin and other altcoins with crypto CFDs. With a CFD (contract for difference), instead of physically or digitally buying the currency, you are merely speculating on the price and make a profit if you are estimates were correct. The same is true for all CFD derivatives including stocks, indices and commodities.

 

Commodities

For those interested in trading actual physical goods like gold and silver, coffee or even oil and gas – Commodity CFDs offer the best of both of worlds. You can trade on the price movements of these commodities with a modest deposit and utilize the leverage or borrowed capital from your broker to increase your potential profits.

 

Stocks and Indices

Even stock derivatives can be traded as CFDs and unlike the JSE All Share Index, with CFDs, you gain exposure to a more diverse market with hundreds of international indices and the best performing stocks they offer.

You can trade Amazon, Netflix, Google and Amazon CFDs as well as major indices like NASDAQ, the NYSE and you can even trade the JSE All Share index as long as it’s included in your broker’s list of indices.

 

Conclusion

While the JSE All Share Index has been performing incredibly well the past five years, the basket of equities tracked are not adequately balanced in order to properly manage risk exposure. Given that there are other more accessible opportunities both locally and abroad, South African investors should look to other investment avenues like the CFD derivatives markets. However, it’s important to note that both financial markets carry their own risks and benefits and investors should look to educate themselves before deciding which one best suits their risk appetite and trading strategy.

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HIGH RISK WARNING:
Trading Foreign Exchange (Forex) and Contracts for Differences (CFD’s) is highly speculative, carries a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.

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