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In our first website update for 2018, we take a look at the volatility of the All Share Index, Mid Cap Index and the Small Caps index on the JSE and find that the Small Caps index is not as volatile as readers would expect it to be, considering the shares listed in this index is to a large extent rather speculative and would therefore be prone to volatility.
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Volatility on the JSE for various indices
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All Share vs Mid Caps vs Small Caps
The graphic below shows the average daily volatility (measured by the difference between the indices High and Low and expressed as a percentage of the closing value of the indices on a daily basis) per month from January 2015 to January 2018 (for the days for which data is available). While the trends and movements are similar when looking at the graphic below, when averaging it to years it becomes clear that the average daily volatility of the JSE Small Caps index is less than of the Mid Caps and All Share Index.
The significant spikes in both the All Share Index and Mid Cap Indices volatility at the end of 2017 and start of 2018 can be attributed to significant price movements in a few shares. For the All Share two heavily weighted shares (Steinhoff and Naspers) and for the Mid Caps, EOH.
Steinhoff (which lost almost 90% of its value in a matter of two days after they announced financial irregularities and accounting issues worth at least R96billion), and Naspers which has been sold off recently due to them being in the news for all the wrong reasons (Multi Choice/ Gupta links payments and ensuring the switch from SAs broadcasting from analog to digital is delayed for as long as possible).
Then EOH, a large mid cap whose share price has been dropping steadily over time due to them unwinding various businesses and massive director sell offs. Possible financial irregularities similar to those reported by Steinhoff.
Steinhoff (which lost almost 90% of its value in a matter of two days after they announced financial irregularities and accounting issues worth at least R96billion), and Naspers which has been sold off recently due to them being in the news for all the wrong reasons (Multi Choice/ Gupta links payments and ensuring the switch from SAs broadcasting from analog to digital is delayed for as long as possible).
Then EOH, a large mid cap whose share price has been dropping steadily over time due to them unwinding various businesses and massive director sell offs. Possible financial irregularities similar to those reported by Steinhoff.
So what does the average daily volatility over a longer period look like per index type ? The graphic below shows the average daily volatility per index per year from 2015 to 2018 (for the days data is available for).
The graphic above clearly shows that while one would expect the riskier Small Caps Index to be more volatile than the larger firm indices such as the Mid Caps and All Share Index (driven by a few very large companies), things are not always as they seem, and the numbers prove that riskier doesn't automatically mean more volatile.
The next time someone asks how you can stomach taking a punt on a little small cap, show them this page and tell them that there is more daily volatility in the All Share and Mid Caps indices than that of the Small Caps. Thus you sleep easier at night knowing it is not nearly as bumpy a ride as the indices of the large firms
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