A risk-adjusted evaluation of the JSE top 40 as an international investment option

Abstract

In response to the wealth destruction caused by the 2007/2008 global financial crisis, many developed economies have lowered their interest rates to improve their balance sheets (SARB, 2008-2012). However, in order for investors to sustain expected returns they will have to deviate from the traditional approach of investing in government bonds and consider investing in emerging markets, which are considered as potential drivers of global growth (Deloitte Consulting LLP, 2012). The goal of this paper is to establish the importance of considering South Africa as an emerging market investment opportunity, but also to acknowledge its ability of outperforming several other common emerging markets during the post-financial crisis period. This was done by means of a novel approach to the Omega ratio. The results from this paper confirms this, illustrating that the performance of the JSE Top 40 will compensate for the additional political risk that emerging market investments possess (Anshuman, 2010).