About stock market indices

A basket of stock prices, average, and weighted equally or by another measure such as market capitalisation. Many foreign investors seek to invest in such indices to gain exposure to the particular economy. While most of the liquidity is found in the large companies included in the index, they seldom represent the core underlying domestic economy or the state of entrepreneurship. All too often they include large state enterprises, under the influence of central or regional government, a few large mining and oil companies and so on. The index is often inflated by the influx of foreign money which then attracts more money. At the same time, this allows more selective investors to take their time in discovering off-index stocks, which have better business dynamics.