As of April 1st 2012, Qatar Exchange introduced a number of new equity indices to supplement the existing QE Index. A total return version of the QE index was launched; this is an index which measures both price performance and income from dividends for the 20 largest most liquid stocks. QE also published All Share and sector indices to provide an overall market benchmark and allow further analysis of industry performance in real-time.
What is an index?
An index is a numerical value that measures the performance of a given market through aggregation of the prices of a representative basket of stocks. Indices are calculated as weighted average of the constituent prices, the weight depends on methodology but the majority of indices are weighted by market capitalization. Reviews take place on a regular basis to ensure selected stocks as well as their weightings are correctly representing the underlying market.
Indices are produced primarily for use in analysing investment strategies and as a measure of portfolio performance for professional investors such as pension funds, insurance companies and other institutional investors. Retail investors use indices as a benchmark against which to compare the performance of chosen stocks. Indices which measure the performance of a specific industry sector provide further tools that allow efficient 'stock picking'.
Equity Indices are mostly weighted by the free float market capitalisation of each company (free float shares multiplied by share price). The price movement of a larger company (say, representing five per cent of the value of the index) will, therefore, have a larger effect on the index than a smaller company (say, representing one per cent of the value of the index). The index value itself is simply a number which represents the total market value of all companies within the index at a particular point in time compared to a comparable calculation at a starting point.
The daily index value is calculated by dividing the total market value of all constituent companies by a number called the divisor. The divisor is an arbitrary number chosen at the starting point of the index to fix the index starting value (say, at 1000). The divisor is then adjusted when capitalisation amendments are made to the constituents of the index allowing the index value to remain comparable overtime.
The market capitalisation of a company is adjusted to take account of various corporate actions. To prevent the value of an index changing due to such an event, all corporate actions which affect the market capitalisation of the index require an offsetting divisor adjustment. By adjusting the divisor, the index value remains constant before and after the event. The following types of corporate action require divisor adjustment : rights issue; addition/deletion of constituent within the index; issue of new shares; share repurchase.
QE index measures the 20 largest and most liquid stocks in the Qatar market. On the 1st day of April and October the index is rebalanced, determining whether existing constituents continue to fulfill index criteria. All listed companies are ranked by giving free float market capitalization a 50% weight (or consideration) and average daily value traded also 50% weight. Companies with velocity less than 5% are excluded from the review, as are companies whereby a single shareholder can only own less than 1% of outstanding shares. The 20 constituents of the QE index for the following 6 months are determined. A 15% cap is applied to an individual constituent's weight in the index, with the excess weight distributed proportionately among the remaining index constituents. In such cases, the fixing of shares figures takes place only at rebalance dates.
QE Total Return Index
QE index measures only price performance of component stocks. Qatar Exchange calculates a total return version of the index that also reflects income received by way of dividend payments on the 20 stocks. The methodology reinvests the dividends in the index on the day a security is quoted ex dividend (day after the AGM). A total return index represents the total return earned in a portfolio that tracks the underlying price index and reinvests dividend income in the overall index, not in the specific stock paying the dividend.
QE All Share Index & Sector Indices
Qatar Exchange offers an 'all share' index that covers all listed stocks with share velocity greater than 1%. Velocity is the proportion of total shares that have changed hands in one year. The All Share index acts as an overall benchmark for the market, with over double the number of component stocks versus those included in the QE index.
The All Share also acts to support underlying sectors indices. Constituent stocks of the All Share index are allocated to one of 7 industry sector indices. These indices will provide a framework that allows investors to perform real-time sector analysis.
The All Share/sector indices measure 'total return'. Identical to QE total return index calculation methodology, the series measures price and dividend income movement.