Not only WIG20 and S&P 500. Stock exchange indices in Poland and around the world – how to understand them?
The Polish WIG20, the American Dow Jones and S&P 500 or the British FTSE100 – these stock indices are well known to everyone who invests. However, not only brokers and analysts should know that stock indices allow you to quickly assess how a given market or its segment is doing.
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Thanks to stock indices, investors from all over the world can compare the performance of their portfolios with the market and make better investment decisions. They also constitute the basis for passive funds and ETFs, which are gaining popularity.
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As a reminder: by definition A stock index is an indicator that shows changes in security prices within a selected group of companies. It can be calculated based on various methods such as arithmetic or weighted average.
Not only WIG20 and S&P 500. Stock exchange indices in Poland and around the world – how to understand them?
In other words, an index is a basket of stocks, bonds or other instruments that reflects the performance of a selected market or strategy. Each index has its own calculation methodology and is expressed in points. The most important are percentage changes – increases or decreases – which show how the market is changing.
Indexes can be classified according to various criteria:
- sectoral – include companies from a specific industry (e.g. technology, finance),
- regional – refer to companies from a given country or region,
- stock and bond – depending on the type of financial instruments.
Indexes may be capitalization-weighted, price-weighted, or equally weighted for each company. We distinguish price indices (they only take into account share prices) and income indices (they also take into account dividends).
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On the WSE, the Polish Stock Exchange, the most important are WIG20 (20 largest companies), mWIG40 (medium-sized companies), sWIG80 (small companies) and the broad WIG.
WIG20 includes the 20 largest and most liquid companies on the WSE main market at a given time. In turn, mWIG40 covers 40 medium-sized companies listed on the main market of the WSE. It is a price-type index, which means that when calculating it, only the prices of transactions included in it are taken into account, and dividend income is not taken into account.
Each of the stock indices in Poland has its own calculation rules and composition, which changes with the market. In addition to them, there are sector and national indices.
World stock indexes. How do they differ?
One of the most frequently tracked indices in the world is the S&P 500, which includes the 500 largest American companies. This index is popular with long-term investors because it reflects the health of the US economy. It also covers 80 percent. all stocks listed in the US.
The oldest stock index in the world is the Dow Jones Industrial Average (DJIA), which includes the 30 most important companies listed on the New York Stock Exchange.
Another interesting index is the NASDAQ Composite, which focuses mainly on technology and innovative companies.
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On international markets, popular indicators are the British FTSE100, the Japanese Nikkei 225, and the German DAX stock index deserves attention due to its stability and importance in the European economic context.
As the website Analizy.pl explains, most countries that have stock exchanges publish at least one index for their main shares.
Indices show the overall condition of the market and serve as a benchmark for comparing investment performance. Investors cannot buy the index directly, but can invest in index funds or ETFs that track its composition.
