And it’s not the only blue chip that shrinks when JSE stocks are viewed through a wider lens.
One of the interesting things in stock markets is how fuzzy classifications of some seemingly ‘obvious’ things can be.
Likewise, everyone knows that you should invest in stocks that are ‘cheap’ – but everyone argues different measures for valuations. Is price-earnings better than dividend yield? Discounted free cash flow?Well, one is ‘size’. But what is big and what is small? Let’s focus on the latter here.A ‘small cap’ stock is one that has a ‘small’ market capitalisation. Likewise, mid caps and large caps follow as we go up the size rankings. In other words, size is relative.
This is an easy classification, but it ignores the rest of the world and only classifies size relative to the JSE itself.How would this relative size comparison look if we shifted our focus globally?MSCI maintains and publishes an MSCI World Small Cap Index that represents 23 developed market countries and their equity markets.
If we use a rand exchange rate of R18.64 to the US dollar, then this threshold market cap is the rand equivalent of R351.9 billion! This is larger than the entire Standard Bank Group market cap of only R306.6 billion, thus implying that Standard Bank Group is a small cap!Let me say that again: the largest small cap is around R351.9 billion in size and, thus, arguably, any stock smaller than this could be considered a small cap on a global stage.
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