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How do the NZSE 40 and other indices work?

Wednesday 23rd January 2002

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Q: What is the difference between the NZSE 40, NZSE 30 and NZSE 10, and what are Equity Indices?

A: The NZSE 40 contains New Zealand's 40 largest and most liquid companies and is the main barometer for the New Zealand market, just as the Dow Jones Index is the barometer for the day-to-day performance for the US market. To become part of the NZSE 40 a company must be one of the biggest on the exchange and its shares must be actively traded. Basically the NZSE 30 and NZSE 10 indices are similar but with only the top 30 or top 10 companies. The size of a company is measured by its market capitalisation, which is simply the number of shares on issue multiplied by the current share price.

Equity Indices refer to the various sector indices such as leisure & tourism, forestry etc. The components of these indices are included no matter what their size because they measure the various sectors that the companies operate in. They can be small, illiquid companies but because they work in that sector they are included. An equity index gives an overview of how a particular sector of the economy is performing and can be compared to a more general index such as the NZSE 40 to see if it is doing better or worse than the rest of the economy.

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