Dow Jones, Ibex, Nikkei, Nasdaq ... These are words that surely sound familiar to you. Their importance is such that they often make the headlines of the media on a recurring basis. They are all stock indices. In this article I am going to explain what a stock index is, what it is for, the different types there are and examples of the main stock indices in the world.
What is a stock index?
A stock index (“stock index”) is an indicator that shows the variation in the price of a set of listed assets that meet certain characteristics.
The oldest stock index that continues to update today is the Charles Dow, the historic journalist and founder of Wall Street Journal that helped shape markets as we understand them today.
What are they for?
In the first place, stock indices serve as a reference to know the general behavior of certain types of assets.
Related to the above function, stock indices are used as a benchmark or basis of comparison to determine the relative profitability of fund managers and individual investors. For example, if an investor has had a return of 15% for a year, in principle it is a more than acceptable figure. However, if that same year the index of the stock market in which it invests had risen 30%, its relative profitability would have been quite mediocre.
Finally, stock indices serve as a benchmark for passive investing. Passive mutual funds or indexed ETFs will only have to replicate to stock indices to obtain the same gross return.
Types of stock indices
There are different classifications of stock indices. I leave you the three most common classifications.
By the geographical origin of its assets:
- National indices, made up of assets from the same country.
- International indices, made up of assets from one or more foreign countries.
- Global indices, made up of assets from around the world.
By the type of companies they contain:
- Sector indices, made up of companies in a specific sector.
- Intersectoral indices, made up of all types of companies.
By the type of assets they contain:
- Equity indices, made up of shares.
- Fixed income indices, composed of bonds and obligations of all kinds.
- Commodity indices, such as oil, gold, silver, etc.
Examples of the main stock indices of the world
Major US Stock Indices
- Dow Jones Industrial Average: Better known as Dow Jones or simply Dow. It is made up of 30 American companies.
- S&P 500: It is an index composed of 500 of the largest companies on both the New York Stock Exchange (NYSE) and the Nasdaq.
- Nasdaq 100: It is the stock index made up of the 100 largest non-financial companies on the Nasdaq. It is largely made up of technological values.
Main European stock indices
- Eurostoxx 50: Main European stock index. It covers the 50 most important companies in the euro area by capitalization and trading volume.
- DAX 30: Main German index with the 30 most important companies on the Frankfurt Stock Exchange.
- FTSE 100: Index of the London Stock Exchange with its 100 most important companies. It was created by the Financial Times newspaper.
- CAC 40: Index with the top 40 companies on the French stock market.
- IBEX 35: The main Spanish stock index with the 35 companies with the highest capitalization and liquidity. The name “Ibex” is an acronym for “Iberian Index”.
Major Asian Stock Indices
- Nikkei 225: Main Japanese index made up of the 225 most liquid companies on the Tokyo Stock Exchange. It was created by the Nihon Keizai Shinbun newspaper.
- SSE Composite Index: It is the most important Chinese stock index. It is made up of all the companies listed on the Shanghai Stock Exchange.
- BSE Sensex: India's leading stock index. It is made up of the 30 largest companies listed on the Bombay Stock Exchange.
- Hang Seng Index: Hong Kong's main stock index. It has 33 companies. It was created by Hang Seng Bank.
- KOSPI: It is the main South Korean index. It has all the companies listed on this market weighted according to their market capitalization.
Main South American stock indices
- Bovespa: Main Brazilian stock index. Composed of the 50 most important companies listed on the Sao Paulo Stock Exchange.
- IPC: The IPC (Price and Quotation Index) is the main Mexican index. Tycoon Carlos Slim controls about a third of the value of the companies that make up the index.
- Merval: It is the main Argentine index with the most important companies on the Buenos Aires Stock Exchange.
- IPSA: IPSA is the acronym for Selective Stock Price Index. It is the main Chilean index. It is made up of 40 shares.
- IGBVL: Main Peruvian index.
- IGBC Bogotá: Index composed of the 36 most representative companies in Colombia.
- IBC Caracas: Venezuela's main stock index made up of 16 companies.
- MSCI Latin America: Stock market index that includes 137 companies from Brazil, Chile, Colombia, Mexico and Peru.
Major global stock indices
- MSCI World: Index made up of more than 1.600 companies from 23 developed countries.
- MSCI Emerging Markets: Index composed of more than 800 companies from developing countries.
- S&P Global 100: Index made up of 100 multinational companies from around the world.